Month: November 2016

Re-Blog: Health Care Has a Middleman Problem

News articles looking closely at the PBM industry appear to becoming popular. Ken McEldowney, with Morning Consulting takes yet another look at the practices of this middle-man industry. He makes several good observations including:

The oligopoly that is the PBM industry not only hurts struggling consumers, it also makes jaw-dropping profits off of them. In 2015 alone, the PBM industry accumulated about $11.5 billion in profits and revenue increased at a “whopping annual rate of 20 percent over the last 5 years,” according to consumer advocate and lawyer David Balto.

Read Health Care Has a Middleman Problem at Morning Consult.

 

The Art of the Claw-Back

Pharmacy is an interesting business. Unlike most other business models, pharmacy does not completely control the price it charges for services and product. Pharmacy Benefit Managers have leveraged several aspects of contracts and healthcare to remove significant parts of the free market. These include indirect manipulation of a pharmacy’s Usual and Customary Prices, maintaining independent MAC lists, and taking advantage of the requirement that patient claims have to be submitted at the point of sale for them to be counted toward out of pocket expenses and deductibles. The end result is that the some plans actually charge patients more than the plan pays the pharmacy for the medication, a tactic known to pharmacists as a claw-back. Let’s look each component before we look more closely at the claw-back.

Usual and Customary Price

Usual and Customary (U&C) Price is the price a business charges for a product or service. The pharmacy is required, by its contract with the benefit manager, to submit its U&C price to the PBM: it cannot have a lower price for cash customers. A typical contract between the PBM and a pharmacy provider stipulates that the PBM will pay the pharmacy the lesser of:

  • Average Wholesale Price (AWP) minus a percentage, plus a dispensing fee or
  • Maximum Allowable Cost (MAC) plus a dispensing fee or
  • The pharmacy’s U&C price

If a pharmacy submits a U&C price lower than either of the other two arms of the contract, it leaves money on the table. Ten years ago, we regularly submitted U&C prices that were lower than the MAC rate for common generics in order to keep our cash business competitive. Back then, a lowered U&C price, even if it means getting paid less buy the insurance, still represented a respectable margin and profit.

The same concept is not true today. MAC Reimbursement, being applied to virtually all generic medications sold today, is often so low that leaving even a few pennies on the table becomes significant. Today, pharmacies must ensure that they are paid the full allowable amount on every claim simply to keep their doors open.  In short, the nature of the PBM contract forces pharmacies to inflate their U&C price in order to ensure maximum allowable reimbursement for all prescriptions.

MAC Heterogeneity

If a pharmacy only had to deal with one PBM, manually adjusting the pricing of each product on the MAC price list would be possible. In this way, the pharmacy could maintain competitive cash prices and not violate contracts. But few pharmacies deal in such a limited environment. Most have dozens of different PBMs, and each PBM can have multiple MAC lists, one for each plan.

Each of these lists contains different drugs and different prices. Attempting to ensure a pharmacy’s U&C is slightly above every MAC price would be impossible. Any attempt to be competitive in the cash market would necessarily be decreasing pharmacy reimbursement on the insurance side. That being said, there are examples of companies trying to do just this. The most notable example is Walmart, who attempted to leverage the idea of the $4 generic as a loss-leader. Their goal was to drive customers to its pharmacies and therefore increase traffic in its stores. While they would not make the same margin / profit on the prescription, they hoped to increase sales elsewhere in their stores. This worked for Walmart for awhile.

But gradually, this tactic began to fail. At the time Walmart started this program, getting $4 for a 30-day supply still made the pharmacy a small profit. The PBMs, however, moved to decrease their MAC prices for on these drugs. This impacted not only Walmart, but all pharmacy providers. At first, the PBMs reduced the MAC prices to $4, but later they went even lower. So even Walmart’s loss-leader U&C price ended up above the PBM’s MAC prices.

Trapped by Insurance

Whenever insurance in involved, the equation is always more complicated: the provider has to be in-network, or the service provided to the patient may not be covered. So if a patient finds a product or service to be less expensive outside the network, they risk spending money on healthcare that does not apply toward their deductible or out-of-pocket maximum expenditures. While there are instances where the patient can submit the expenses themselves to have them counted, this is not universally true. In cases like Medicare, patients cannot submit expenses themselves. Many HMO organizations have similar requirements.

The Art of the Claw-Back

To summarize the constraints outlined above: the current healthcare system tends to artificially elevate a pharmacy’s U&C prices. The net effect: plans look like they are saving consumers money. This subtile subversion of the free market is enhanced by the fact that patients must use participating providers to use their insurance benefit. It is this tight control over providers that allows the claw-back to exist today.

What is a claw-back? With a standard claim, the provider submits the service or product to the insurance and the benefit manager or plan will price the product and return the patient’s copay. In this case, patient’s copay represents all, or some part of the total price. But in a clawback, the copay is actually greater than the total price (the amount paid to the pharmacy). Let us look at a concrete example of a clawback.

A patient goes to a pharmacy and fills a prescription for a sertraline 50 mg tablets # 90. The pharmacy bills the insurance its Usual and Customary of $305.48 The insurance returns the following:

  • Total Authorized amount (the amount the pharmacy is to be paid): $6.68
  • Patient Copay: $25

The pharmacy will collect $25 from the patient. The insurance will withhold $18.32 from the pharmacy’s next remittance, effectively collecting a clawback. In this case, the “cash” price (U&C) is not less than the copay. That does not mean, however, that there are not other programs outside the patient’s insurance that would result in a lower copay to the patient.

So what happens if the pharmacy lowers its Usual and Customary Price from $305.48 to $10 to be competitive with the Walmart 90 day plan? The same $6.68 is authorized by the insurance. The same $25 copay comes back to the patient.  Now the cash price IS lower than the patient copay!

Now what happens if the pharmacy further lowers its U&C below $6.68? This is where things get interesting: the claim comes back HIGHER. The pharmacy sees more than it asked for (the same authorized $6.68) and the copay is still $25. There is no rational, contract-based explanation for this.

Are clawbacks common? Most every pharmacy sees them. In our case, we see only a few. This year, to date, we have only seen 11 clawbacks. All 11 are from two plans that are not highly represented in my geographic region. In other areas of the country, clawbacks are much more prevalent.

What can a pharmacy do to educate patients? Our answer is to put the authorized amount and the copay on the patient’s receipt. This allows us to easily point out the practice to the patient while they are standing in front of you at the point of sale. This is yet another example of making every encounter count.

 

Thankful for Open Enrollment–Medicare Part D 2017

Patients and pharmacies are currently in the middle of the 2017 Open Enrollment period for Medicare Part D Prescription Drug Plans. Pharmacies must follow Medicare guidelines if they are helping patients choose a plan in 2017: they cannot guide patients to specific plans that are better for the pharmacy. Pharmacies are limited to providing non-biased facts to the patient. In practice, pharmacies can show the patient all of their options and answer questions about the process. Our pharmacy uses a product called iMedicare to enable us to do this quickly and accurately for our patients. Unfortunately, the same rules do not appear to be applicable to the plans themselves, and this is frustrating to pharmacies

The Scenario: Next year, our pharmacy will move from being a preferred provider with a plan to simply being a provider. The implications are that patients on that plan will pay higher copays when using a non-preferred pharmacy. The plan is calling patients that use our pharmacy and telling them that we are not going to be a preferred pharmacy next year and (I’m paraphrasing here based on conversations with many patients) they need to switch pharmacies to achieve the maximum savings they are eligible to receive.

Now while this statement is factual, it is also conveniently incomplete and misleading to the patient. It incompletely addresses possible courses of action for the patient, mentioning only on those that benefit the plan. If I did something like this in my pharmacy, I would be investigated by Medicare and likely subject to sanctions or monetary penalties.

The problem is simple: the patient has three possible courses of action for the 2017 plan year:

  1. Keep the current plan and pay higher copays at the pharmacy of the patient’s choice
  2. Keep the current plan and switch pharmacies to a preferred pharmacy
  3. Choose a different plan entirely based on cost and pharmacy of choice.

The plan’s phone calls cover only the first two options, and as it turns out it doesn’t address any of the various permutations of these choices. We have done impartial analysis on dozens of our customers that have received these phone calls, and this is what we have found.

Using a non-preferred pharmacy does not necessarily mean the patient will pay more. The plan making the phone calls urging patient to switch pharmacies is not actually looking at the patient’s medications and situation. As it turns out, using a non-preferred pharmacy does not change copays for patients on a Low Income Subsidy (LIS). Additionally, patients taking some very expensive medications that result in the patient reaching the catastrophic coverage phase also end up paying almost exactly the same amount out of pocket at a preferred and non-preferred pharmacy. In short, several of our patients that have received calls could continue to use our pharmacy despite us not being preferred, and not be financially impacted.

Staying with the current plan and switching pharmacies is not always the least expensive option for the patient. One of the first things we do when helping a patient consider plans is to look at all plans without respect to a given pharmacy. This gives us a baseline for the lowest possible cost plan with respect to yearly out-of-pocket expense (this includes the plan premiums plus medication copays). Once we have established a baseline, we can add in the patient’s preference for pharmacies and compare this to the baseline. What we routinely find is that often patients better are off, compared to their current plan, choosing one of several different 2017 plans. What’s more, the patient can often achieve this savings without sacrificing their choice of pharmacy. By not broaching the possibility that the patient’s current plan may not be their lowest cost option in 2017 during its calls, the plan is withholding critical information and misleading the patient. This is fraud, in my opinion. 

There is actually a fourth option available to patient, but it is rarely discussed: Medicare Part D is optional, and the patient can simply not participate. This does invoke a 1% per month penalty on future premiums for each month that the patient does not carry creditable (comparable) coverage for prescriptions drugs, and I always discuss this if a patient is considering opting-out.  Choosing a Medicare Advantage plans is also a possibility, but this further complicates the discussion, and is better discussed with a license insurance agent.

So the take home point is that patients have to be careful about what they are being told by others. In our case, we have identified all of our customers on the plan making these calls, and we are contacting each one to discuss all of their options. We do this completely within the Medicare guidelines, and we have occasionally have to recommend (reluctantly, of course) a plan in which we are non-preferred, possibly leading them to use a different pharmacy. But by working with each patient, we are making each and every encounter count.

Apples and Orange Books

Darrel Huff’s How to Lie With Statistics is an excellent overview of using mathematics and statistics mislead things that may not actually be true. At the beginning of his book, Huff starts with a quote popularized by Mark Twain and attributed to British Prime Minister Benjamin Disraeli:

There are three kinds of lies: lies, damned lies, and statistics.

The art of statistical malfeasance is regularly practiced in the realm of drug development and marketing, and today’s Tales from the Counter is a common example.

Our patient was being treated for glaucoma with latanoprost. Unfortunately, mono-therapy was not achieving the desired goal for our patient’s intraocular pressure. The ophthalmologist wrote a prescription for a second drug,  timolol maleate, in hopes of better controlling the pressure in the eye. The prescription, however, was not  written for generic timolol. It was written for Istalol 0.5% drops, and this is where statistics and science enter into the equation.

Istalol is a brand name version of Timolol Maleate 0.5% drops. Also available are generic Timolol Maleate 0.5% solution and Timolol Maleate 0.5% Gel-Forming Solution (GFS). In the eyes of the Food and Drug Administration, each of these drugs are scientifically and statistically different. Because of this, the pharmacist cannot substitute any of these three for another without getting a new prescription from the prescriber.

The rules of substitution enumerated in an official publication of the FDA called the Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations. This compendia of equivalent and non-equivalent dosage forms  (bioequivalence) is governed by a science called pharmacokinetics. In the most basic terms, bioequivalence is achieved by statistically demonstrating similar rate and extent of absorption into the body. Bioequivalence has two opposing uses: matching rate and extent to create a substitutable generic equivalent, and purposefully modifying rate and extent to prevent equivalence, creating a non-substitutable drug entity. This last use is commonly used to create a marketing advantage.

Note that equivalence, or the lack thereof, are not inherently relevant in a clinical sense. Bioequivalence is not a measure of clinical outcome. Instead, it ensures that a given clinical outcomes should be observable using any equivalent product. Differences in rate or extent do not mean that one product is necessarily better than another.

This is the key point. Some bioequivalence differences statistically demonstrate better disease control or fewer side effects. More often, bioequivalence differences are associated with patient convenience: once-a-day dosing offering potentially better patient compliance than twice-a-day dosing. If taken properly, either will achieve the desired clinical outcomes.

It is creation of a non-substitutable drug entity that creates some of the most interesting pharmacy stories. When faced with the impending loss of patent protection, it is common for the pharmaceutical manufacturer to re-formualte their product to create a non-substitutable version of their product. This helps them extend the profitability of their product. But often these tricks offer little  in terms of actual clinical advantage.

This brings us back to our timolol prescription. Istalol is non-substitutable timolol with once-a-day dosing. The Timolol Maleate solution requires twice-a-day dosing to achieve the similar therapeutic effects. Interestingly, the Timolol GFS can also be dosed once daily to achieve the desired outcome. A brief search of the literature did not reveal any obvious clinical advantages of Istalol over the other two products. Because our patient has not, as of yet, tried any timolol formulations, we have no reason to believe that they would not achieve their therapeutic goals on any of the available timolol formulations. So how do these products compare with respect to price?

  • Istalol 0.5% Solution, 5 ml: $270 (Copay $135)
  • Timolol Maleate 0.5% solution,  10 ml: $10 (Copay $0)
  • Timolol 0.5% GFS, 5 ml: $70 (Copay $0)

Given that the Timolol GFS is dosed once-a-daily like the Istalol, and it is $135/bottle less expensive to the patient, it would be a much better first choice. Because the prescription was written for non-substitutable Istalol, the prescriber was contacted to request a new prescription. This is called making every encounter count!

Pharmer Rex’s Apple Pharm

Meet Pharmer Rex. Rex lives in the country and runs the family apple orchard called the Apple Pharm, just as his father did before him. The local residents of the town regularly visit Pharmer Rex to get their apple-a-day to keep healthy. Pharmer Rex and his family have made a decent living over the years selling apples and keeping the town-folk healthy.

But things on the Apple Pharm have not been as good lately. Down the road, a big-box store opened up, and they too sell apples. Pharmer Rex’s business has declined because the competition is willing to sell their apples below cost just to get the town-folk into their store to buy other merchandise. Farmer Rex understands competition, so he invests in his orchard. Instead of trying to compete on price alone, our savvy pharmer starts growing fancy apple varieties that the competition doesn’t provide. Things once again pick up for Pharmer Rex, but even though profits are still down some, he is happy.

Soon, the competition notices the boutique apple selection up the road, and they don’t see the investment required to get into that business as insurmountable. They bring in their own boutique apple varieties. Like before, the big-box store looks to drive traffic to their store, pricing even their boutique apples much like fallen fruit in the orchard. Pharmer Rex once again sees profits and sales drop. But being a true apple pharmer, he reaches higher into his trees’ better fruit. This time, he invests in ovens and cider presses. Pharmer Rex starts selling fresh apple goods: pies, turnovers, and fresh apple cider. Pharmer Rex’s investment paid off once again. Sales and profits were up. And even though his apples were more expensive than the competition down the road, the town folk still bought some of his apples because they already had come for his other apple-related goods.

No doubt, by now, you recognized this as a thinly veiled parable about independent pharmacy. Independent pharmers, err, pharmacies have long been leaders in identifying and pioneering new fertile grounds for their practices. Each time an independent pharmacy reaches higher in their tree and invests in more valuable fruit, the big-box stores have to decide if they also want to follow the same course and invest. It is a lot like an arms race between the independent pharmacies and the chain pharmacies. Typically, the independent pharmacies forge ahead, but they are soon followed. But as the investment costs increase, the low-cost model of the chain pharmacies will eventually reach a tipping point. When will the required investment be too great to justify the chain store from following along?

We are already seeing signs that this is happening. Consider the Medicare Part D Medication Therapy Monitoring programs, usually referred simply as MTM. This is a significant problem for the chain pharmacies, as their pharmacists are very busy simply checking the high volume of fallen apples, err, prescriptions they are presented. Some chains have dabbled with a central clinical pharmacist to review and complete these cases. They have had varying degrees of success with this, primarily due to patient resistance: If patient doesn’t know the pharmacist cold-calling them to perform the service, they are less inclined to participate. There certainly still appears to be value in the patient-pharmacist relationship.

So how does Pharmer Rex’s story end? The ending has not been officially written. But as I see it, there is one inevitable ending for Pharmer Rex: He becomes a coffee farmer.

Now wait! you think. That makes no sense! Let me explain. Each incremental investment that our entrepreneurial pharmer made in apples was eventually matched by the big box competitor and then discounted. Our hero’s competitor put no value on the apple. Recognizing that the chains were so entrenched in providing low cost apples, to the point of losing money, he came to the conclusion that he had to completely change his focus in order to survive. Our pharmer, therefore, decided to invest in something completely different.

But now our agrarian simile loses some of its cachet. So let’s put some of this this back into pharmacy terms. The PBM industry is only paying pharmacies for fallen fruit, and that is not going to change. So instead of fighting to maintain that dying model by cutting costs and decreasing patient care, our hero instead elects to find payment for clinical services. This is a costly investment, as it necessarily requires more expensive pharmacist payroll and a completely different practice. None of this is easy. Finding sources of revenue requires significant work and investment, sometimes without immediate rewards.

Because Pharmer Rex is a visionary, he started this transition some time ago, he is now seeing the fruits of his labor. Pharmacists are close to receiving provider status with the federal government, and they have already received it in some states. The commercial insurance world is also taking notice of the savings the pharmacists can impact, and they too are starting to pay pharmacists for clinical services. Even Medicare Part D is moving in this direction with new emphasis being made on quality. Working hard, Pharmer Rex has several new opportunities that don’t revolve around the low-price PBM drug model.

But what about the chain pharmacies? Will they change their direction and follow? Because this change is so dramatic, it will take them a long time to decide. Ultimately, I feel that there will be two classes of pharmacy: dispensing operations, dominated by retail chain operations and mail-order, and clinical based pharmacies. Both will be paid (poorly) for product for the foreseeable future. The difference is that the clinical pharmacies will also be paid directly by the insurance plan for the impact they have on total health spend on their patients.

So if you identify with our friend farmer Rex, you need to start now. Invest in your practice. Work to develop the relationships with both payor and patients that will allow you to impact healthcare and be paid for your efforts. Make every encounter count!