Month: February 2016

An interview with my business partner, Randy McDonough,  appears in the BT Pharmacy Consulting Blog published yesterday. For those interested in his perspective and our practice, point your web browser here.

Pharmacists have been attempting to educate other about pharmacy benefit manager (PBM) tactics,  but few outside the profession understand the complexity and implications. Recently, however, congress and other have started paying attention to the associated costs of the PBM middleman. Benefit Design Specialists recently wrote about the implications in their blog, and it is an excellent summary of the problems. Click here to read their post entitled Your Health Plan Has a Serious Drug Problem.

My business partner, Randy McDonough has spent a lot of time traveling and speaking about MedSync at town hall meetings hosted by our affiliation (HealthMart). He continues to be surprised by how many pharmacies have not heard about, or have little interesting Medication Synchronization. We believe that there is a lot of value in this MedSync; our pharmacy has seen a significant impact since our program was implemented.

Just about a year ago, our pharmacy started really pushing a medication synchronization program. We went from a paper file based program to an electronic system. When we started our push, we had about 50 patients enrolled, and the program was labor intensive. One year later, the process is much more streamlined, and we how have over 400 patients enrolled. Our overall goal is to have about 30% of our active patients enrolled in the synchronization program. In one year, we are about half of the way to that goal. A secondary goal of our program is to enroll up to a third of our synchronization patients in our SuperSync program.

While we do charge for the enhanced packaging option included with SuperSync, there is no cost to our patients for our basic sync program. This is unusual for us; we make it a rule to charge for services our pharmacy offers. Our basic synchronization program is an exception to this rule. The reason is simple: while synchronization benefits the patient, by decreasing the complexity of managing their prescriptions and the number of trips they make to the pharmacy, it also has significant benefits for our pharmacy. The 15% of our patients enrolled to date were approached specifically because they represented more than 15% percent of our retail prescription volume. Our average sync-enrolled patient has more than 5 medications; many have significantly more.

The benefit for our pharmacy is primarily centered around our ability to anticipate our synced prescription workload. With our synchronization program, we can leverage our knowledge of the patients sync date to:

• postpone stocking expensive medications until just before they are needed, decreasing store inventory and improving cash flow,
• plan and distribute workload throughout the week, improving wait times for our non-sync patients.
• review patient medication utilization, and prepare targeted clinical interventions before the patient appears in the pharmacy.

The last benefit requires some explanation. Our clinical staff, while managing our synchronization schedule, also have used the opportunity to review the patients’ medications and utilization. Beyond reviewing maintenance mediations, our pharmacists are now also looking at other aspects of each patient, like immunization history, to identify patients that may need additional services. Specific interventions are printed and added to the will-call bag containing their medications to be picked up. This allows our pharmacists to talk to the patient when they come it, fill in these gaps in our clinical records, and offer additional services, like immunization, if indicated.

The benefits of our MedSync program and the associated changes in workflow efficiency is most visible on Saturday. Our pharmacy is only open for a few hours on Saturday mornings, with limited staff working this day. Historically, Saturday was a very difficult day for our pharmacists. The volume of prescriptions filled per hour was often equal to many week day mornings, but was being managed by a much smaller staff. Since implementing our synchronization program, this has changed significantly. The volume of prescriptions filled on a Saturday is how less than half of what it was before. This reduction is largely due to the redistribution of these prescriptions throughout the week.

One year into our program, we are seeing other benefits as well. Patients that have enrolled appreciate the convenience it provides. This helps cement our relationship with our patients, creating additional loyalty. While the number of visits our sync patients make to the pharmacy may actually decrease as a result of synchronization, the actual level of engagement with them has increased as a result. This additional engagement has helped us promote other paid services to our patients and thereby expand our revenue opportunities. The impact and opportunites afforded by our synchronization program are certainly broader than we first anticipated.

Narrow network, or preferred network pharmacy contracts are generally offer the pharmacy lower reimbursement in exchange for access to the network’s patient base. Previously we discussed how participation in narrow networks may not actually drive patients in your direction (The Flip Side of Access to Lives). Today I wanted to talk about the math behind these contracts.

Preferred Reimbursement.

In general, a narrow network contract is not very lucrative. Several contracts that I have seen describe in terms of a Generic Effective Rate or GER. This GER defines the average discount on Average Wholesale Price (AWP) the benefit manager will take when it sets its Maximum Allowable Cost (MAC) prices for generic drugs. Historically, an non-preferred network contract might define a GER in the range of AWP – 78%. The narrow network contracts I have seen often have a GER that exceeds AWP-90%.

Doing the Math (or Why Sign a Preferred Contract?)

Before signing a contract, a pharmacy or their contracting organization will evaluate the reimbursement offered to be sure that the agreement is in the best interest of the pharmacy or pharmacies involved. Doing this involves some assumptions on what the pharmacy or pharmacies will dispense to patients in the contract. It is the assumptions that can make or break the analysis once the contract is signed and in force.

The primary assumption is mix of drugs that will be dispensed. The contract promises that the benefit manager will pay out, over all drugs and pharmacies covered by the contract, a GER that averages the discount on AWP defined in the contract. An analysis of the profitability of a contract might take historical dispensing records and calculate an estimate of MAC price from the AWP and GER. This then can be compared to an estimate of the net acuisistion cost for each drug.

Why You can Still Lose When the Average is Profitable

My contracting organization signed a narrow network contract because their analysis showed that while the reimbursement was aggressive, it was still profitable. How then, could I loose money on the plan? The answer buried in the statistics. Remember that all MAC prices are going to average AWP – GER. Profit, however is determined by the difference between the actual MAC  and the actual Net Cost.

Consider the top 10 drugs in my pharmacy listed in the table below. Using the AWP / Unit, one can calculate an estimated MAC price for each drug (Est. MAC based on GER). Once a claim is processed, one can capture the Actual MAC price being returned, and calculate the Effective GER. The last two columns calculate the estimated and actual profit or loss per unit for these top 10 drugs.

Based on these calculations, my top 10 drugs should be profitable at the contracted GER (the Estimate Profit/Loss per unit averages $0.215), with only one product underwater. The reality is very different, however. The Effective GER for the top 10 drugs in my pharmacy is much higher than the contract specifies (averaging over 96%). Instead of 1 drug being underwater, 6 of 10 are underwater. The average reimbursement over all 10 drugs actually just below zero.

The next table below shows the top 10 drugs dispensed so far this year in the example narrow network:

Note that while several of the top 10 drugs match the previous table, there are several drugs on this list that appear in at a spot greater than 20 on the overall list. The sample size here is smaller (none more than 6 prescriptions), but after one month, the drug mix already appears fairly stable. Of interest in the table is one drug that does not appear in the top 200 (Quetiapine 50 mg). This becomes important in the discussion below.

Like the previous table, the estimated profit and loss using the contracted GER are positive: none of the top 10 drugs here are estimated to be losers. Looking at the actual adjudicated MAC rates reveals that the average effective GER for these 10 drugs is, like the overall list above, higher than the contractual rate. In this table, the net profit is positive. The reason that the average profit for the top 10 drugs is above zero is the presence of the single outlier drug: Quetiapine 50 mg. This drug, which is otherwise not it the top 200 drugs our pharmacy dispenses, has a high AWP with a MAC price discounted near the contracted GER. It is a stark contrast to the others: a winner. Removing this one drug from the list drops the actual profit down to zero.

This illustrates the danger of using an average GER in a contract. The plan can, and apparently does, discount common best selling drugs at rates far in excess of the contractual GER. Other, less common, drugs will be discounted at lower, more profitable rates to generate an average over all pharmacies that meets the contractual requirements. But if a given pharmacy doesn’t dispense a mix of products containing a sufficient sample of winners, they will quickly trend to either zero or negative profit.

For a given pharmacy, therefore, a preferred network contract becomes a gamble. Will I at least break even? Will I average a few dollars for each prescription over the year? Or will I actually pay the benefit manager, in the form of a net loss, for the privilege of filling prescriptions for my patients? This gamble is compounded by continuing patient migration to narrow network plans in order to save money. Over 75% of patients are now enrolled in a preferred network plan, and that number will only increase with time.

What Do I Do?

In all likelihood, the implications of the current batch of narrow network contracts is just now becoming apparent to those pharmacies participating. After a single month, for example, our pharmacy has managed a profitable mix for one of the more aggressive networks. This, of course, will need to be watched carefully as our mix changes with time. Other networks we are enrolled in use Voodoo DIR fees, which makes assessing our position virtually impossible in the near term.

But pharmacies do have options. Many states have adopted laws that regulate the MAC prices of drugs. It is very important that pharmacies exercise their voices, submitting underwater MACs for review, and reporting problems to the appropriate agencies when the benefit manager fails to implement a meaningful change. While our contract for reimbursement is tied to the GER, we are still entitled to be paid the cost of the drug product. We are still entitled to the protections offered by our laws. Despite the severity of contracted GERs, most common drugs are profitable if the benefit manager actually uses that rate. An average GER can be either fair or unfair to a pharmacy, depending on how the benefit manager manipulates individual MAC prices. It is in our interest fight and ensure we are paid fairly under the contract’s terms.