Category: Regulations

Legal and ethical issues for the thriving pharmacist.

Cost vs. Care

It is becoming increasingly evident that the current Medicare pharmacy benefit (Medicare Part D) is broken. Recently, several Medicare Prescription Drug Plans (PDPs) were given the opportunity to hear about pharmacists’ activities to support clinical outcomes and patient care. The information presented included a description of significant savings a commercial plan realized due to the positive effects of pharmacists’ interventions. At the end of the presentation, the representatives from the PDPs remained  silent. There was no outward enthusiasm for the patient care described and the results achieved from that care. In sort, the PDP representatives did not appear to understand how care fits into their cost-centric model.

The Focus on Drug Cost

The laser-like focus the PDPs have for trimming cost is nothing short of amazing. Examples of downward pressure on costs include extensive use of Maximum Allowable Cost (MAC) pricing and, more recently, Direct and Indirect Renumeration (DIR) fees. The dispensing fee paid by the PDP to the pharmacy has also been mostly eliminated. Once, dispensing fees (the fee paid to the pharmacy for the service of filling the prescription) measured in dollars. Today they are measured in cents, and it is not uncommon for a PDP to pay a $0 dispensing fee to the pharmacy for dispensing a 90 day supply of a medication. The end result is no appreciable profit for pharmacy for the drug product.

Consequences

When a company sees lower profits, it has to react in order to stay profitable. Pharmacy is no different. Over the last several years, pharmacies have been trimming their expenses and working on efficiencies to counter the constant downward pressure on drug product reimbursement. Eventually, each pharmacy comes to a point where further cuts to remain profitable are more onerous than closing their doors. The equation for profitability is especially vulnerable in regions with limited populations to service. Rural pharmacies are very susceptible to the PDPs cost-centric model.  The rash of closings of rural pharmacies in states like Iowa has created areas without access to a pharmacy. Rural patients requiring pharmacy services are then relegated to either mail order, or a long drive to a neighboring community.

Technology has a solution creating pharmacy access in remote areas: Tele-Pharmacy. Tele-pharmacy leverages a technician driven pharmacy and a remote pharmacist capable of performing final verification. The remote pharmacist is able to communicate “face-to-face” with the patient in a live video conference to complete counseling and answer patient questions. A single pharmacist might be able to staff multiple remote pharmacy sites, reducing the overhead of each pharmacy by a portion of the pharmacst’s salary. This resulting economy might be enough to make a rural pharmacy business plan feasible.

History Repeats

Tele-pharmacy is yet another way pharmacy has tried to adapt to the model set by the cost-cutting PDPs. In the case of tele-pharmacy, however, the cost being cut is the person actually providing the care. This should be a concern to all pharmacists. Given past developments, consider a likely progression of events for tele-pharmacy:

  • The number of remote pharmacies a pharmacist “manages” will undoubtedly climb with time, resulting in less and less time for the pharmacist to focus on patient care.
  • Tele-pharmacy concept will be brought from rural areas into more populated centers in an attempt to further save money on pharmacist salaries.
  • Seeing the costs of filling a prescription further fall, the PDPs will again reduce reimbursement, erasing any positive gains on pharmacy profit gained by the use of tele-pharmacy.

Drug Cost and Paying for Care

I understand the fixation the PDPs have on drug cost, but drug product is only a part of the pharmacy equation. Pharmacists provide much more than drug product to their patients. Pharmacists all over the country work closely with their patients. They listen to their drug and disease issue. They decipher verbal and non-verbal clues to discover drug therapy problems. These face-to-face encounter are a large part of what pharmacists do every day. While the teleconference type interaction used in tele-pharmacvyc is not ideal for patient care, it is a suitable substitute in cases where an onsite pharmacist is not feasible. But pharmacy has reached a tipping point: the current emphasis on drug cost is now significantly impacting the ability of pharmacists to care for their patients.

A New Model

This brings us full circle to the current, broken model. A new model is needed for pharmacy. A model that pays pharmacists for their positive impacts on patient care and the savings they provide in the total health spend. We are slowly moving in this direction, as Congress works to make pharmacists providers under Medicare. But even this is not enough. Congress needs to overhaul the current PDP system. Make the PDPs accountable morbidity and mortality of the covered beneficiaries. The PDPs should be see incentives for reducing hospitalizations and ER visits that decrease expenses to Medicare. Congress needs mandate the PDPs to compensate the providers for their care and contributions in helping them achieve these goals.

This new model should pay pharmacists to perform CMM (Continuing Medication Management). Pharmacists and pharmacies should also have a shared risk in these endeavors, with rewards reaped for reducing health care costs. This may sound like science fiction to some, but commercial plans and managed care organizations are already moving this way. Starting in 2016, there will be a network of high performing pharmacies in place in my state. These pharmacies will work with a payor to reduce total health spend. This network boasts a new model for pharmacy reimbursement, with shared risk and reward.

It is time for Congress and Medicare to recognize not only pharmacists as providers, but also as an important and untapped potential to improve the system. It is time to for pharmacists across the country to stand up and be heard by their representatives. Recently, the senate held hearings on the PBM industry. This means that there is no better time than now to contact your representatives. Let them know what you do every day as a pharmacist. Be sure they understand that the current model is broken and needs to be fixed. It needs attention now, now later. Make your voice heard. Make this encounter count!

Why Transitions of Care and PBMs Don’t Mix

My step-father, who has been deathly sick for the past 6 1/2  months due to an aortic valve replacement surgery that did not go well, is being discharged from the skilled nursing facility where he has resided at for the past month and a half.  Before this, he was in the ICU for over 3 months, were he required a tracheostomy, gastric tube, urinary catheter, and oxygen.  To be honest, there were several times when we didn’t know if he would make it through the night.  But, he slowly started to make progress, and now he is ready to be discharged to go home.  I am not only his step-son, but I am also his pharmacist, his pharmacy, and his POA for both health and financial matters.  Because I have been a pharmacist for almost 30 years now, I know the challenges that occur during transitions of care, especially as they relate to medications.

In my step-father’s example, he is being discharged on a Sunday.  I had been working with his social worker, nursing supervisor, and prescriber to make sure that I have an updated medication list.  I reviewed this list, noted the discrepancies, and sent a follow up note to all three providers.  They indicated that they will only fill the medications that he has been taking while in the facility and, if there are any discrepancies, I should follow up with his PCP and specialists that he sees (which include a pulmonologist, neurologist, and cardiologist).  So I did this, and received new prescriptions for the medications that they want him to take following his discharge.  Obviously, this was a multi-step process that occurred over several days.  Now that I have his prescriptions, things should go smoothly, right?  Wrong!  When we went to fill the prescriptions, they, of course, got rejected as “refilled too soon” because the long term care pharmacy that fills for the facility (not our pharmacy) has already filled and billed medications.  I confirmed with the facility that they will not be sending him home with any mediations, so,  next step was to call the Pharmacy Benefit Manager (PBM) to get an override. This is where the frustrations and problems escalated.

I explained to the PBM representative that my step-father is being discharged on Sunday and that I am not only his step-son, but his pharmacist and pharmacy.  I want to be proactive and have all his medications filled so when I pick him up on Sunday, he has all his medications there.  Sounds easy, right?  Wrong again?   The representative said that we cannot be proactive and that he cannot get an override until he is discharged.  I said that our pharmacy is closed and that I will be busy getting my step-father home, but she said there is nothing she can do.  I asked for the representatives supervisor, and this person reiterated said the same information.  The supervisor stated that they are “only the processor” for the plan, and that I would have to contact the plan to get an override before his discharge date. The supervisor was unable to give me a phone number to contact the plan, and said to look on the back of his card. I don’t have that information readily accessible.  The supervisors solution was to have me come into my pharmacy early on Sunday, fill the prescriptions, call the PBM to get overrides (one by one for 8 to 10 medications), fill the medications, then go see my step-father.  I asked her why we cannot be proactive, since we are only talking about 2 to 3 days and the supervisor said the plan will not allow them.  So, now instead of focusing on helping my mother (who is also ailing) and my step-father (who’s health is very fragile), I have to figure out how to fill his medications on the day of discharge–are you kidding me!

That is why I titled this blog “Why Transitions of Care and PBMs Don’t Mix”.   Supposedly payers are concerned about the quality of health care and that readmissions for the same diagnosis are frowned upon.  So, when you have a pharmacist proactively working closely with prescribers to get an accurate mediation list and making sure the medications are ready when the patient is being discharged, this should be a good thing, right?  Wrong, yet again.  Plan and PBMs are so worried about the kind and timing of the override that they have totally forgotten about the patient.

It is time to change the system.  Pharmacists are frustrated with the limitations that insurance plans and PBMs have place on patient care.  Doesn’t it make sense to ensure the patient, who has been hospitalized, should get their medications seamlessly to prevent a bad outcome?  And doesn’t it make sense that it should happen prior to the discharge?  I was unable to get the appropriate override, but it did move me to action, as I am writing a letter to my step-father’s insurance plan and the plan’s PBM to express my concern that their limitations will end up hurting patients.  Perhaps, they need to be educated about the challenges of transitions of care from a patient and caregiver perspective because, from my perspective, they know very little.

An Ode to Empty Warfarin Bottles

Some pharmacists and most patients don’t immediately recognize that some prescriptions medications are hazardous materials. That is not the same thing as dangerous (necessarily), because prescription medications are safe as long as they are used in the manner that they are prescribed. The hazardous label comes not from the Food and Drug Administration (FDA), but the Environmental Protection Agency (EPA).

From time to time the news media will cover a story about ground water (streams etc) having measurable concentrations of antibiotics or steroids. These amounts generally are very, very small, but the implications to the population in general and the environment are real.

Proper disposal of unused medications, therefore, is important. Many pharmacies (in Iowa for example) participate in a Take-Away program for non-controlled drug disposal. This program helps divert unused medications from the landfill and possible infiltration into our ground water supply by incinerating the medications at an EPA registered waste facility to render them harmless.

Of course, some medications are more worrisome than others. Very few medications make the EPA’s list of acutely toxic substances. One common exception, however, is warfarin (the generic of Coumadin, a blood thinning agent). Warfarin is also used in commercial rodent poisons, and even a small amount can impact the blood clotting physiology of humans and other animals.

The Resource Conservation and Recovery Act (RCRA) is the regulation that defines hazardous waste in the United States. Warfarin appears on both the P and U lists of hazardous waste (depending on the concentration of warfarin in the product). And while the tablets of warfarin (once dispensed to the patient) are exempt from any special disposal requirements (as they have been used for their intended purpose), the residual (the dust that may remain in the container after all tablets are gone) has not been used for its intended purpose, and is therefore subject to the RCRA and its requirements.

This interpretation of 54 FR 31335-31336 (July 28, 1998) by the EPA means that pharmacies must comply with the requirements of the RCRA (see 40 CFR 261.2) when disposing of the empty warfarin bottles. This is where things get a bit more complicated. If a pharmacy generates enough waste (greater than 1 kg / month), it is subject to a host of extra rules. Fortunately, it is the weight of the residual powder (measurable in milligrams), not the weight of the bottles, that is considered. This makes all but the largest pharmacies most likely categorized as conditionally exempt generators.

But being a conditionally exempt generator doesn’t mean these bottles can simply be thrown away. These bottles must still be disposed of in a manner consistent with RCRA guidelines. In order to discard the bottles into the traditional waste stream (for example, a landfill), the bottles must be RCRA empty (as defined by 40 CFR 261.3), requiring a triple rinse with a solvent documented to remove the hazardous materials. From a practical angle, this is not feasible, as the rinse material would then be a P-listed waste, and the simple act of rinsing would actually increase the amount of waste on hand.

There have been a couple of EPA guidances on this topic published in the past few years that are worth reading:

  1. October 2011 Letter (Boston Field Office)
  2. November 2011 Letter (Washington DC Office)

Concentration is the Key

The most important aspect of this problem is the dual nature of warfarin as it is classified by the RCRA. At concentrations of above 0.3%, warfarin is listed as acutely toxic and on the P-List. At lower concentrations, the same product becomes U-Listed. The “intended use” interpretation for the residue only appears to apply to P-Listed substances, and at lower concentrations, less stringent disposal rules would apply.

The second (November) guidance above does address some anecdotal evidence that the amount of warfarin residue might potentially be U-Listed. Limited testing referenced in the letter showed residue of warfarin in a single dose package was about 36 micrograms. This is in line with our estimates done with an analytical balance. The residual powder in a bottle of 1000 tablets averaged about 13 mg (equivalent to 650 micrograms warfarin).

The reporting of concentration as a percent, however, leads to difficulty in interpretation. For example, If an empty bottle of 1000 warfarin 10 mg tablets contains 13 mg of residue equivalent to 0.650 mg warfarin, the concentration of warfarin (reported  as a percent of the initial warfarin contained in the bottle) is 0.0026%. In other words, the bottle is 99.9974% empty. But the concentration of the residual powder would be still 5% w/w warfarin, identical to the tablets themselves.

This relative nature of percent has created some confusion. Consider the State of Florida’s own guidance, which uses the first calculation example above to calculate warfarin in the empty bottle as under 0.3% (of the initial warfarin concentration). The guidance states that the FDEP has determined that the containers are therefore identified as U-Listed. The November guidance from the FDA, however, clearly specifies the second calculation (the warfarin concentration (w/w%) of the powder residual itself). This guidance essentially relegates every strength of warfarin tablet (and the residual dust they generate) as P-Listed.

What is also not clear is if RSRA rules allow the dilution of the P-listed agent to attain U-listed status. If an “empty” warfarin bottle contains 15 mg of residue (containing 0.7 mg warfarin), adding an additional 200 mg of lactose ( or other pharmaceutical powder diluent) and mixing until homogenous would render the %w/w concentration of warfarin less than the 0.3%, making the bottle subject to U-listing procedures. For reference, 200 mg of lactose a small pile size of a dime. Without official guidance from the EPA, using a strategy like this would incur significant risk.

Best Practice

The rules created by the RCRA cover the industrial generation of waste. Procedures referenced within the rules talk about a variety of instances, but examples often illustrate a much larger scale of waste than a pharmacy would generate. For example, discussions referencing containers like railroad tanker cars, a scale that only a pharmaceutical manufacturer might approach. Empty bottles that formerly contained pharmaceuticals really should be subject to more specific and appropriate rules. The EPA guidance from October 2011 noted that they were currently evaluating certain aspects of the management of hazardous pharmaceutical wastes in healthcare settings, but no new guidances are available since 2011.

In the end, because each bottle contains (less than one milligram of) warfarin, pharmacies should continue segregate and send away empty warfarin bottles for incineration at an EPA licensed facility. Companies like Sharps Compliance Inc and others can help a pharmacy manage these wastes. One possible way to kill two birds with one stone is to use a program like Sharps Compliance’s Take-Away containers. These container can be used to dispose of unused, non-scheduled, patient medications, including warfarin tablets. Patient medications could be aggregated into an empty warfarin bottle, and when the bottle is full, the entire bottle (with patient medications AND the P-listed warfarin residue) can be placed in the Take-Away box for incineration according the EPA guidelines.

Should the Tail Wag the Dog?

Here at the Thriving Pharmacist, we often write about where we believe the practice of pharmacy should going, and given the feedback we receive, there are more than a few pharmacists that agree with our direction. In a nutshell, we believe that pharmacists and pharmacies should be documenting patient care, evaluating outcomes of therapy and working with patients and prescribers to optimize medication use. There is evidence already available (some discussed on this blog previously) that pharmacists, when used in this manner, can benefit the healthcare system in significant and meaningful ways. This includes financial benefits to the healthcare systems, with significant savings realized in total health spend.

But healthcare today is very fragmented, and this creates the potential for inefficiency. The companies paid to manage the prescription benefit (Pharmacy Benefit Managers or PBMs) often have no stake in the total health spend. The primary mechanisms used by the benefit managers to save the healthcare systems money are downward pressure on the cost of medications and (more recently) DIR fees taken from member pharmacies and shifted back to the health plan. The health plans appear to be mostly unaware that pharmacists, used properly, can positively impact their bottom line in other ways.

This myopic doctrine manifested when Congress handed the Medicare Drug Benefit (Medicare Part D) over to the PBMs to run. The PBMs are only responsible for drug costs. The accountability for total health spend falls to Medicare Part B, so any programs under Medicare Part D that leverage pharmacists to increase medication compliance and improve medication related outcomes come at the expense of the PBMs with no return on the PBM investment. It comes as no surprise, then, that Medicare Part D MTM programs have been mostly non-starters, with very few patients eligible, and plans using internal resources instead of the patient’s own pharmacist to implement them. The PBMs appear to view these programs as added expense without a return on their investment.

This fragmentation is allowing the tail to wag the dog. The Medicare Part D benefit has become a “success” from the prospective of congress, with the savings the PBMs have shown. These savings have largely come at the expense of the bottom lines of the actual providers in the trenches, though. One only has to look as far as Medicare’s own reports to see that the PBM industry is doing quite well, quite possibly making as much money managing the benefit (charging a spread on each prescription) as the pharmacies actually caring for the patients. The recognition by the government that the current problem is a success further propagates the currently popular PBM strategies that have forced down the price paid to pharmacies for medications without looking at the bigger picture: medications (when used correctly) are an incredibly cost-effective way to save total healthcare costs. It is not always the least expensive medication that is going to save the system the most money in the long run, but the tail continues to argue cheap is better, and the dog doesn’t seem to be complaining.

The solution for health care, however, is just waiting to make it through congress. By giving provider status (with Medicare) to pharmacists, the real benefits of pharmacy can grow beyond Medicare Part D’s emphasis on cheap drug product. Paying pharmacists to make interventions that ultimately save the provider (Medicare part A and B) in total health spend makes significantly more sense than the current model focusing almost exclusively on drug cost. In effect, provider status for pharmacists will ultimately use pharmacists where they can save the most for the system.

Today’s assignment is for every pharmacist to have an encounter with their elected officials in Washington DC. Refer them to some of the examples discussed previously on this blog (things like the Army’s own reports, and studies looking at savings by improving compliance and other examples) where pharmacists can save the payor money. Help them understand that pharmacists are an important asset to help Medicare survive. Make your encounters count. Get help them understand the importance of Medicare acknowledged provider status to pharmacists. If they have not already signed on in support of the current bill, encourage them to do so. Help stop the tail from wagging the dog.

Medicare Part D and Clinical Opportunities

On a recent conference call, we learned that a significant Medicare Part D plan would NOT have any clinical opportunities for pharmacists in 2016. This is disappointing on many levels. The fact that Medicare will allow a plan to do this is troubling, especially with the increased lip service being paid by Medicare with respect to quality measures.

Pharmacists should be upset by this, but there is another facet to this that is equally troubling: Medicare Part D plans are not searchable based on clinical services offered. While the Medicare.gov plan discovery tool does display the presence of an MTM program it is not prominent and does not adequately describe the program’s context or extent (see the example below). These omission are significant, especially given the emphasis on quality being touted by Medicare. If a patient considers their local pharmacist to be an important part of their care, and desires to have clinical services (locally provided by their pharmacy) included in their drug plan, they are adrift with little guidance.

While it is possible that Medicare may eventually include clinical opportunities as a searchable term, and / or make differences  in how the services are provided more obvious to the end user, it may come down to companies like iMedicare to fill this void in the near term. This company can be used by pharmacies to quickly help their patients choose a plan based on the same information used by the Medicare.gov website. If iMedicare supplemented the information already being provided by Medicare with a description of MTM and clinical opportunities for the given plan, it would allow pharmacists to explain which plans include this important feature. These details on how each plan handles MTM are very valuable, as some plans do not use local pharmacists to perform these clinical services, or severely restrict the number of patients that are eligible. Given this additional information, patients would have a more complete understating of plans and could then make better decisions about their Medicare Part D plans

Part D Follow-up

Yesterday, our pharmacies received an update from a major Part D plan in our area. This update stated:

Effective immediately, [plan] will continue to cover brand name ABILIFY at the non-Preferred Brand Tier. The generic, aripiprazole, will NOT be covered for the [plan] members. Please continue to dispense ABILIFY  rather than substituting the generic product…

Given that the generic product is already close to half the price of the brand Abilify and falling (generic 5 mg aripiprazole  down by roughly $100 in the last 3 weeks), one has to question the reasoning for this policy. Manufacturer rebates that lower the cost of the brand name drug to offset the difference in price compared to the generic may be the reason such a policy exists. Our state Medicaid program leverages rebates in a similar way.

Another observation made was that plan members’ co-pays are going to remain high for what is now a generically available drug. This policy is an example of cost shifting in Medicare Part D plans. The patient will be paying a non-preferred brand name drug co-pay (for this plan, 33% of the adjudicated amount, which equates to roughly $310 per month) instead of a generic co-pay ($7 per month), a significant difference.

It is important to note that, unlike a Medicaid program, where the use of rebates lowers the cost of medications for the payor AND patient co-pays are generally very low ($1-3), rebates in the non-transparent world of Medicare Part D are not applied to the adjudicated amount. This means that a prescription for Abilify 5 mg will adjudicate for roughly $950 per 30 days, and the patient will be responsible for 33% of this amount. The generic (assuming a generous, non-MAC reimbursement of Average Wholesale Price (AWP)- 25% )** would result in a total adjudicated amount of about $725. Ignoring any rebates, the cost of the brand name Abilify to the PBM would be lower (about $640) than the generic product (about $712). All of the difference (not counting any rebates) is due to a shift in co-pay to the patient.

The other, possibly less noble reason, however, is that the PBM may profit from a better “spread” for brand name drugs (see an unscientific analysis of CMS data in “Examining Medicare Part D Transparency“). Between the cost shifting of the medication to the patient and the markup that the PBM takes above the reimbursement made to the pharmacy, this type of policy may represent a significant windfall to the PBM at the expense of both the patient and Medicare. The lack of transparency in Medicare Part D (and other PBM run commercial plans) is costing everyone.

 

** In reality, this generic medication would likely be subject to a MAC (Maximum Allowable Cost) price, and reimbursement to the pharmacy would be closer to $500-$550 per 30 day supply. This turns the equation upside down without rebates from the manufacturer of the brand name drug. The cost shifting, however, remains and the patient is still paying a large percentage of the cost for the brand name drug. If rebates were handled equitably, the patient copay would reflect a generic copay instead of a non-prefered brand name tier.

Examining Medicare Part D Transparency

Pharmacy as a profession has suffered over the last 10 years. Downward pressure on reimbursement for drug product, combined with a dearth of payment to pharmacies for professional services has led to the closing of hundreds of pharmacies over the past years. The economic pressure being excerpted on pharmacies is leading to the adoption of what we have dubbed “the Stripped Down Model” of pharmacy.

The concept of the PBM originally started as a service to act as an intermediary between pharmacies and the insurance payor, facilitating the processing claims. Today, the PBM industry sells a “network” to insurers, giving their patients access to pharmacies. The PBMs have expanded their services to include formulary management and other services purported to help contain costs for the payor. When the Medicare Part D benefit rolled out, Medicare entrusted this benefit to the PBMs to run, and by and in large, legislators believe that Medicare Part D is a success story.

Pharmacists, however, generally have a different, more negative, view of the PBM. At the same time as pharmacies have struggled, Pharmacy Benefit Managers have regularly reported record profits. Pharmacists, those in the trenches working with patients, are concerned with the amount of money being spent by Medicare on the “middle man” PBM industry. For the most part, the “spread” between what the PBM pays the pharmacy for drug product and what the PBM in turn charges the payor is concealed. There is little transparency in the PBM industry to date. From a pharmacy perspective, pharmacists generally wonder just how much of a success Medicare Part D would be if there were more transparency.

Recently, the Centers for Medicare Services (CMS) released detailed information on prescription drug spending for the 2013. The press release (including some interesting summary data) is available here, and for those with a thirst for raw data, the details are available  here. This data is reportedly some of the most comprehensive data released by CMS to date, and it offers significant insights into the Medicare Part D benefit.

As a pharmacist and pharmacy owner, two tables from the press release immediately struck a chord with me. These tables have been copied from the CMS press release and reproduced below:

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Given that the tables report Total Drug Cost and Total Claim Count, it is possible to calculate the average cost per prescription to Medicare for any of the drugs in the tables above. This, combined with estimates of pharmacy reimbursement for the same drugs will give insight into the amount being retained (sometimes called the “spread”) by the Pharmacy Benefit Managers (PBMs) charged with administration of Medicare Part D.

Assumptions

Keep in mind that the lack of transparency with the data still limits firm conclusions from being made. For example, the proportion of 30 day to 90 day fills for any given drug is not known. Likewise, the tables above do not differentiate different strengths of a drug, lumping all strengths together. On the pharmacy side, the cost of goods will vary some from pharmacy to pharmacy and region to region. The cost and profit data being presented below is assumed representative, understanding that the while the data was pulled from a specific demographic region and patient population, it is likely in general agreement with national data.

Methods

For each drug in Table 1a and Table 1b, Medicare Cost/Claim was calculated by dividing the Medicare total drug cost by the Medicare total claim count. The result is an aggregate value, representing all possible day-supply and strength combinations.

For the same drugs and time period reported by Medicare, prescription claims for Part D plans for a midsize independent pharmacy were examined, and the Pharmacy Reimbursement (also known as the adjudicated amount) and cost basis of the drug product were extracted. From these values, the following were calculated:

  •  Cost/Claim minus Pharmacy Reimbursement = PBM Spread
  • Pharmacy Reimbursement minus cost basis = Pharmacy profit

Transparency Approximated

Generic Drug Summary with Profit
Estimated Pharmacy Profit and PBM Spread for the Top 10 Generic Drugs in 2013

Brand Transparency
Estimated Pharmacy Profit and PBM Spread for the Top 10 (Brand Name) Drugs by total cost for 2013

Discussion

Generic Drug Profit and Spread

The pharmacy data represented above appears to agree with the CMS data well. While the pharmacy data set size is only a small fraction of the CMS data set size, each drug is represented by more than 500 claims, with most drugs represented by more than 1000 claims. The average pharmacy profit for these 10 drugs during 2013 was just over $6.50, and this appears to be in line with anecdotal reports of prescription profit during 2013. It is interesting to note that if the estimate of pharmacy reimbursement is reasonably close to the average across the United States, the PBM is taking roughly half as much as the pharmacy makes for each prescription. Keep in mind that the PBM does not need to maintain drug inventory, and has almost no patient care expenses to cover. The average estimate of more than $3.50 per generic prescription being paid to the PBM begs the question “what value is being received for the money being paid to the PBM?”

Top 10 (Brand Name) Drug Profit ant the Spread

Unlike the generic data, there are some obvious difficulties with the Brand Name data set. The amount of reimbursement exceeded the total adjudicated amount for one drug. This problem is likely attributed to how certain brand name drugs are priced. Crestor and Junivia, for example, cost pharmacies about the same amount per tablet regardless of the strength being dispensed. Other drugs, like Abilify, increase in cost with an increase in strength. Given the small sample size for many of the brand name drugs represented here, it comes as no surprise that Abilify does not match the CMS data well. This is likely explained by the pharmacy data representing a higher proportion of the higher strengths of Abilify (20 and 30 mg strengths) than the aggregate CMS data. Conversely, despite having only 87 and 80 claims each, Crestor and Januvia do match, likely because the cost per tablet is independent of strength. Because of this discrepancy, Abilify was omitted from average and total calculations in the table. Additionally, the pharmacy data did not include any prescriptions for Revlimid  in the data period, so Revlimid was also excluded from average and total calculations.

It is important to note that with the exception of Adair, the small sample size for pharmacy claims could skew results. Based on the dispensing profile of the pharmacy, the most likely skew would be toward the dispensing of a 30 day supply. Such a bias would result in an overestimation of profit for the pharmacy (with 30 day fills generally being accompanied by a higher dispensing fee and lower discount on Average Wholesale Price (AWP). A overestimated pharmacy profit would tend to underestimate the spread (PBM profit) for the drug.

The average pharmacy profit for the 8 brand-name drugs (omitting Abilify and Revlimid) was close to $26 in 2013. By comparison, the PBM profit (spread) was estimated to be $39 per prescription (about $14 MORE than the pharmacy makes).

Being in the Wrong Business

Where this exercise gets interesting is when one extrapolates the profit made by ALL pharmacies for the top 10 generic and Top 10 drugs by cost. Multiplying the profit per prescription for the pharmacy by the total number of claims for each drug, it is estimated that all pharmacies billing Medicare Part D (combined) made a profit of about $3.5 billion. Based on these calculations, all of the Medicare Part D Pharmacy Benefit Managers (a relatively small group of companies) are estimated to profited $3.25 billion (combined) on the spread. A significant amount of this profit would appear to com from brand name medications. The PBM insudstry is making this profit without having employees in the trenches caring for patients, without any investment in brick and mortar stores, and with inventory and equipment needed to actually dispense prescriptions. It also excludes any profit the PBM makes by participating as a provider of Mail Order prescriptions thru its own pharmacies. The lack of transparency into PBM accounting also precludes attribution of any brand-name drug rebates, which may, or may not, be included in the information reported by Medicare.

Conclusions

This exercise is far from a scientific evaluation of the data that CMS has released, though results seem to correspond with the apparent profitability that the financial results for many of the largest pharmacy benefit managers show. It would take a significant effort to determine a more accurate, national, estimate of pharmacy costs for these drugs in order actually quantify the amount Medicare Part D spends on “managing” the benefit. The purpose of this quick exercise, however was to make some general assumptions, and gain an insight into just how much money may being retained by the PBMs. It is no coincidence that the PBM industry and insurance industries have signfificant lobbying efforts in the nation’s capital. The stakes are quite high for these industries. If the quick estimates above are even reasonably close, the public, along with Congress and Medicare should take notice.

Almost $23 billion of an estimated $64 billion spent by Medicare on drugs 2013 was spent on these 20 drugs alone.  From this $23 billion, the calculations above estimate that $3.25 billion was paid to administrators of the Part D plans. If accurate, it means that PBMs took more than $8 billion in 2013 for their services. Real savings could be realized by Medicare by increasing transparency of PBMs and limiting the spread allowable for Medicare Part D administrators much in the same way that the PBMs have limited pharmacy reimbursement thru tools like MAC pricing lists. The Congressional Budget Office (CBO) estimates that Part D spending will total $76 billion in 2015. Transparency could easily shave several percentage points from this, and that adds up quickly.

The Rewards of Performance (Updated)**

It should come as no surprise to anyone active in pharmacy that CMS has started to emphasize quality and performance as a part of the metrics being used to grade pharmacies Pharmacy Benefit Managers (PBMs). The mechanism for this evaluation are the Star Ratings, and these the pharmacy specific metrics are subdivided into several disease specific measures. Pharmacies receive scores for each measure, and the Medicare Part D Prescription Drug Plans (PDPs) are scored by CMS based on their own measures along with an aggregate of the pharmacy specific performance numbers for all of their network pharmacies. The metrics are collected and calculated by PQS (Pharmacy Quality Solutions) thru the EQuIPP platform.

Pay for Performance

Recently, 2014 performance reports have begun to emerge, and pharmacies are starting to see the fruits of their quality oriented labor. The harvest, however, appears to be a little disappointing. Below represents the report and payment made by a Medicare Part D PDP (Prescription Drug Plan) to a medium size independent pharmacy*.

Performance Report with Payment information for a medium-sized independent pharmacy (filling 250-350 Rx per day)*

Description

The pharmacy represented above is fairly successful with respect to the performance measures. The Medicare Part D plan in this report likely represents only a small fraction of the pharmacy’s Medicare Part D patient population (likely less than a few hundred patients in total). The adherence (prescription drug compliance or PDC) measures for the first two measures (ACE / ARB / DRI and Statins) are well above the 5 star goals, and represent a small subset of the pharmacy’s patient population (around 40-50 patients each). The other two EQuIPP measures represent a very small population of patients (15-16 patients), and a single patient can dramatically affect the pharmacy’s scores (consider that with so few data points, a single patient can raise or lower a score by almost 7%). There does not appear to be any weighting of performance pay based on this type of bias, which is out of the control of the pharmacy.

Another notable observation is that a high performing pharmacy can be paid a premium for very high results. The first two measures show a payment rate of 125% (a 25% premium) for exceeding the 5 star goal. The performance scale extends from 125% down to 0% based on performance. There is not a clear indication where the break in reimbursement levels are being made.

By the Numbers

Some interesting details of the “pay for performance” model being used by this plan emerge from this from this table.

  • The total amount of performance incentives available to this pharmacy for 2014 (the entire year) was $1190. (this assumes a 25% premium is available for all measures and the pharmacy exceeds all goals significantly.
  • The pharmacy serves between 51 and 109 Star Measure Medication patients that are enrolled with this plan. (it is difficult to know how many patients are represented in more than one category)
  •  15% of performance pay was assigned to non-star ratings (non-EQuIPP) measures. These include 90-day fill rate and Generic Dispensing Rate.
  • For EQuIPP Measures, performance incentives average $5.63 per patient per year
  • By patient, incentive payments work out to be below $6 to about $20 per patient per year (depending on the number of patients that fall into more than one category).
  • Payments made for Medication Therapy Management (MTM) Stars Intervention** are being counted as payment already received by the pharmacy

Discussion

The amount being paid for outstanding pharmacy performance by this plan is anemic. For each patient falling into a star-ratings category, pharmacy has the potential to increase revenue by a maximum of $20 per year. In order to maximize this incentive, a pharmacy is going to have to spend money on programs to improve outcomes. Programs like Med Sync and compliance packaging all have significant overhead, and the potential incentives do little to ensure a pharmacy will maintain a positive margin for improving quality.

The use of non-equip measures for 15% of performance incentives is a troubling trend. Remember, it is the patient, not the pharmacy or the PBM, that ultimately should have the choice of a 90-day fill. Many patient prefer regular visits to their pharmacy. While some research supports the thought that 90-day refills increase patient compliance, these studies rely on claims data, making the assumption that actual compliance is directly related the patient having possession of the medication. In truth, leveraging  90-day fills removes only one potential obstacle to adherence, a trip to the pharmacy, while numerous other possible reasons for non-compliance remain. One drawback of 90 day supplies is that compliance issues take longer to recognize. With 30 day refills, the pharmacy can address issues of compliance with the patient within the first 30 to 45 days of therapy, whereas issues with a 90 day supply will not start to become evident for close to 4 months, well after the patient has poor compliance developed habits.

Extended-day supplies have other consequences to both patients and pharmacies. Patients who receive 90 days supplies are offered  savings thru discounted co-pays. The incentive available to the pharmacy for a high 90 day fill percent (with the above example, achieving more than 25% of star-rating drugs dispensed as 90 day supplies) is $152 per year. A typical 90-day pharmacy contract offers a $0 dispensing fee to the pharmacy while the 30 day dispensing fee paid to a pharmacy is typically no less than $0.50 per Rx  If the pharmacy moves from 4% up to 25% 90-day supply fill rate, the pharmacy would be forfeiting $200 dollars in dispensing fees in exchange for only $152 in incentive payments. In this case, a pharmacy failing to make the “grade” on 90-day fill rate is actually better off, and the patient retains their choice of 30 or 90 day fills.***

Another troubling trend is the deduction the plan makes for payments received by the pharmacy for Mirixa  (Medication Therapy Management or MTM) adherence related cases. The plan is essentially creating a ceiling on the total amount a pharmacy can receive for its work. This ceiling includes both incentives and any money available for MTM adherence related case payments. The pharmacy represented in the report above completed 100% of the adherence related Mirixa cases assigned to it in 2014 and received $310 for their work. A typical MTM work-up takes 30 to 60 minutes of pharmacist time, and the effective reimbursement rate is poor, even for a highly efficient pharmacy. The deduction of the Mirixa payments flies in opposition to the quality metrics supposedly being rewarded by this system. By this method, pharmacies with a large number of MTM adherence related patients cases have the potential reach their incentive ceiling entirely by completing MTM these cases. This pharmacy would then receive little to no additional quality bonus dollars for maintaining exceptional EQuIPP scores. It is unclear if these pharmacy would actually have to pay money back to the plan if their MTM adherence related case payments exceeded their “maximum” quality payment.

The problem with using a star ratings system (like EQuIPP) it that it only indirectly measures quality. Compliance can be artificially elevated without actually modifying a patient’s adherence simply by enrolling patients in a Med Sync program or leveraging automatic refills.  Claims data will trend towards improved adherence with these programs, but is the patient actually taking the medication?  Ultimately, the quality measures will have to evolve to include metrics that better reflect the value pharmacists can contribute to the system. Right now, the quality measures are better suited to drive patients to large, robotic mail order pharmacies that can show outstanding PDC values based solely on claims data. Pharmacists offer considerably more to the patient than an indirect measure of adherence, and the measures should emphasize the strengths of pharmacists, and focus less on product. 

Conclusions

This is just a first example of how plans are trying to incentivize pharmacies to emphasize quality. Many pharmacies are taking this challenge seriously, spending significant amounts of resources to improve their scores. The current reward model, however, is in serious need of revision. Without reimbursement on par with the value pharmacist contribute to healthcare, this model will not survive. Only time will tell where we are headed. Until then, pharmacists need to step up to the plate, as it were, and show the patient and the payor that they are capable of improving outcomes. Pharmacists can make a significant contribution to lower total health care costs. We need to get out there and make every encounter with the patient count!

Footnotes

* While this chart represents real data from an actual pharmacy report, it is possible that pharmacies may see different reimbursement based on things like contracts, PSAO affiliations, geographic region etc. This graph is for illustration purposes only.

** Updates are represented by strike thru text and added italic corrections. Updated information was provided by PQS.

*** Updated: The plan here does not have a different rate for 90 day supplies.

The Sandbox

One of the most challenging issues facing today’s health care providers is sharing information. Technologically, one might assume that it would be easy to create a system of data exchange between providers. The reality, though, is that providers may be selective with what they will share, who they may share it with, and how they share it. The primary obstacles to sharing of information are security and access, and these barriers are as much a political issue as they are technical obstacles.

 Obstacles

Security and privacy of health information is a significant obstacle. Just like breaches in major retail stores that make the nightly news (see Forbes for a list of significant breaches in 2014), health information is also under attack (e.g. Anthem, see CNN). The same technologies that enables modern transactions are also able to be exploited by criminals.  Despite recent headlines, however, current technology (when implemented properly) is capable of reliably protecting our personal data, including a digital medical record.

Another significant obstacle is the actual exchange of medical records. All health care providers ( e.g. the physician, pharmacy, hospital and laboratory etc.) maintain some type of patient record. Every procedure, prescription, or visit results in changes in that record. Each change made by one provider (say at the hospital) would, in an ideal system, be updated automatically with the patient’s other providers (e.g. the specialist, the pharmacy and the primary physician). Assuming that security of the data can be maintained without any issue, the remaining problem is a lack of a standardized format for the record. Each repository of patient information is necessarily different because every provider focuses on different aspects of patient care. The format of the records can be very different. At one extreme,  paper record (charts) are still in use, while others may leverage electronic medical records (EMRs). In essence, each provider’s records speak a slightly different language.

The Language of Health Care

Among the first organizations to recognize the importance of intercommunication between health care records were hospitals. The laboratory’s electronic records need to communicate with the electronic chart, hospital billing systems, the computerized census system and the pharmacy’s dispensing system. An entire industry was born to help facilitate this data exchange in hospitals, and with this came the creation of several standard languages, one of which is HL7 (Health Level 7).

Using computers as gateways, hospitals use tools like HL7 to link many different systems to provide a relatively seamless transmission of information between systems. But as good as this would appear on the surface, these gateways have significant obstacles of their own. Gateways are labor intensive to maintain and regularly require maintenance to keep them running. Small changes in one system can break down communication between multiple systems. To Make matters worse, there are many different dialects of the HL7 “language” so even if two systems both speak HL7, information can be lost in translation.

Politics

If one accepts that security of the data can be handled by current technologies, and that gateways like HL7 can facilitate the translation of data, one final obstacle exists. The laws that exist to protect the privacy of health information (like the Health Insurance Portability and Accountability Act of 1996 also called HIPAA) also govern the exchange of information between providers. This exchange may or may not require a written release (depending the the relationship between both providers and the patient). The provider’s access to records needs to be limited to only their patients plus any patients. It is also possible that a given provider may still want to control what data is shared, and when it is shared.

The Implications

Because of the obstacles above, providers and patients struggle to seamlessly communicate. The fax, which became widely available in the 1980’s, is still one of the primary means of communication between providers despite the proliferation of communication options available today. The ramifications are significant, and examples of the problems created by the lack of real-time communication are easy to find. From a pharmacy perspective, four common issues are:

  • A patient admitted to the hospital. The admit process requires the hospital staff to document an accurate medication history. Hospitals do not have access to the current the prescription history for the patient maintained by the patient’s pharmacy, creating a chance possibility for errors, adverse drug events and improper therapy.
  • Therapy changes made in the hospital. These changes need to be communicated to other providers (e.g. the primary care physician and the pharmacy).  The lack of standard communication between hospitals, the primary care physician’s EMR, and the pharmacy’s records can lead to discrepancies.
  • Routine changes made at a physician office. Patients are often instructed by their physical to increase or decrease doses of drugs they take without a new prescription being issued.
  • Medical information related to drug therapy. A pharmacist managing a patient’s drug therapy requires a significant amount of medical and laboratory data to ensure optimal outcomes. Without seamless access to a patient’s relevant laboratory results, relevant diagnosis and pertinent history and physical, pharmacists are limited in their ability to perform Continuous Medication Management (CMM)

Jumping Thru Hoops

Many electronic medical records and other health care provider systems have made their way to the internet. Using secure web portals, providers can access their patient’s records from a variety of locations (office, hospital, home etc). The internet has become an enabling technology for providers trying to share information. If two different systems do not communicate (e.g. the physician’s EMR and the Hospital EMR), at a bare minimum, the provider can access both systems from a single computer to update and check records. Many providers find that they maintain accounts with multiple internet enabled medical records.

A pharmacy with good relationships with several providers might be able to gain access to a variety of records to enable productive collaboration. Besides having access to their own clinical record system, a pharmacy might have access to a hospice’s EMR, multiple nursing home EMRs, and access to records from one or more laboratories. This creates a chaotic environment where information must be gleaned from multiple sources and documentation made across many different records to ensure proper communication between all providers.

Even with great relationships between providers, gaining access similar to that described above is difficult. A pharmacy might serve 10% of a medical practices patients, and access has to be limited properly to prevent improper access. Likewise, a pharmacy would only want grant records access to a provider’s patients.

Today in healthcare, communications between providers is more important than ever before. And today, the fax still dominates communication between providers. It will likely be take a long time before all providers can come to and play in the same sandbox.