Winning the Pharmacy Game Takes Blocking, Tackling

Saturday, February 10, 2007 | 0

By Michael G. Dileo

The severity trend of workers' compensation pharmacy costs is finally starting to show some slight signs of recession. In the last ten years, pharmacy costs for many carriers have more than doubled and still represent anywhere from 10 percent to 20 percent of total medical costs. For many years, workers' compensation carriers have focused most of their attention and efforts toward other areas of cost severity, such as hospitalization and physical medicine. However, it's become evident that normal patterns of pharmacy cost inflation have been bolstered by the growing trend of pain management treatment for workers' compensation patients. Many physicians are now focusing more of their efforts toward the treatment of pain through the use of prescription medications, both orally and by way of injection. As a result, carriers are left to "hold the money bag" while prescriptions are being dispensed without rhyme or reason. What can carriers do to stop the pharmacy bleed? The answer is really not as difficult as it might appear.

Developing a comprehensive pharmacy management program that is focused on managing drug prices, controlling utilization and influencing prescribing behaviors can work to reverse negative pharmacy trends. The key is implementing a multi-faceted approach that is focused on efficiency in all of the key areas that drive pharmacy severity. One very important first step is having a good understanding of exactly how much you're actually paying for prescriptions. Drug prices will continue to rise much faster than the general inflation rate. It's critical that carriers understand the complexities of purchasing drugs if they're going to attempt to manage the cost. Many carriers hire pharmacy benefit managers (PBMs) to handle their purchase of prescriptions from drug providers and pharmacies. PBMs negotiate rates for brand and generic medications based on a percentage off of the average wholesale price (AWP) of the medication and think that they've done all they can to secure the best rate. What they don't realize is there are other things they can do to ensure they're getting the most for their money.

The 2004 NCCI Prescription Drug Study concluded that workers' compensation insurers paid roughly 75% more than group health insurers for the same drugs. Therefore, when negotiating with a PBM contractor, it doesn't hurt to understand how the proposed rates compare with rates paid by health insurers. Even though health insurers will usually be able to negotiate better rates due to their significantly larger purchase volumes, workers' compensation insurers should strive for rates that are as close to health insurer rates as possible.

It's also very important that carriers understand all of the pricing components of their PBM contract. For example, a PBM may offer rates based on a maximum allowed cost (MAC) method instead of AWP. This is really nothing more than the drug manufacturer using a different benchmark than the standard AWP starting point. If the MAC method is used, it should be clearly indicated how that price compares to an AWP price. Carriers should also confirm that the proposed price is actually guaranteed and not subject to market fluctuation. In some instances, a PBM may offer a blended rate as their actual guaranteed rate for generic medications that is lower than their proposed AWP rate for generics. The blended rate takes into consideration the possibility that some portion of the generic medications purchased by the PBM from the manufacturer may actually be purchased using the MAC pricing method. This price is usually lower than AWP, and the combined rates are therefore lower than the original contracted AWP generic rate. Taking it a step further, periodic price audits should be included in the contract to compare actual payment prices with contract prices. The AWP of any medication can be confirmed through the Red Book pharmacy reference manual. The Red Book offers current AWP prices on all manufactured drugs and is nationally recognized as the universal pricing resource in the pharmacy marketplace. The various drug manufacturers establish MAC prices individually.

There are other PBM pricing components that should be considered. These include prescription dispensing fees, transaction fees, card fees, reporting fees and any other miscellaneous fees included in the contract. Carriers should also inquire about sharing a portion of the rebates that a PBM will receive from the drug manufacturers for large-volume purchases. For example, if a manufacturer is offering a $1.00 rebate on every prescription of the popular generic muscle relaxant, Carisoprodol, the carrier can negotiate to recover a portion of that rebate. Rebate payment terms should be included in the contract. Many carriers aren't aware they're entitled to a portion of these rebates.

Another critical component of effective pharmacy cost management is managing utilization. Carriers can do this by implementing Drug Utilization Review (DUR) programs. A 2005 WCRI study concluded that utilization review was one of the primary methods of reducing pharmacy inflation. NCCI has also concluded that utilization has a greater impact than price on workers' compensation drug costs. Effective DUR programs require a close partnership between a carrier and their PBM. Many carriers have their own staff Pharmacy Coordinators to administer their DUR programs. These coordinators use the data provided by their PBM to formulate intervention strategies. These strategies usually include prior authorization and peer reviews for certain types of prescriptions.

For example, many carriers require prior payment authorization before filling brand drugs where generic equivalents are available. They may also require prior authorization on any medications with high abuse potential or in any instance of excessive utilization. Prior authorization triggers are usually included as part of the service provided by the PBM. When PBM drug cards are used to purchase prescriptions, the prior authorization requirements are triggered to the pharmacist, who will then contact the carrier before the prescription is filled. Successful DUR programs will also include nurse or physician intervention with the prescribing physician to confirm treatment plans for each case. These plans will then be monitored to ensure that pharmacy utilization falls within program guidelines.

Influencing physician prescribing behavior should also be included in cost management programs. Some carriers have expanded their DUR programs by implementing Preferred Drug Lists (PDLs). These lists are distributed to physicians, who use them todetermine which drugs are the most therapeutically effective and cost-effective for their patients. In most instances, a Pharmacy and Therapeutics committee of physicians is formed to create a tiered list of medications based on therapeutic value, cost effectiveness and safety. Usually, the list will consist of three tiers of recommended medications that are prevalent in workers' compensation medical treatment. All of the Tier I medications are usually generics and can be filled without prior authorization. All of the medications listed in Tiers II and III require prior authorization. Although they're not mandated, these lists have been used to influence prescribing behaviors of physicians by providing them with recommended medications for specific types of injury. At least 10 states have implemented mandated PDLs. The NGA Center for Best Practices reports that the state of Florida has saved over $500 million on its pharmacy budget since the introduction of its PDL. Even without mandated use, PDLs can be used by carriers as part of their DUR program in partnership with their PBM to impact pharmacy costs at the point of prescription.

Implementing a comprehensive pharmacy management program is essential to counter all of the drivers that contribute to increased pharmacy costs. Since pharmacy inflation is a constant reality, carriers have to undertake multi-faceted approaches toward attacking the problem. Beginning with the drug purchase, efficiencies can be gained through a better understanding of PBM contracts, effective utilization review and intervention and through the influencing of prescribing behaviors toward maximum generic usage. If carriers are willing to take this type of comprehensive approach, they can effectively manage their pharmacy costs and ultimately gain a competitive advantage in the pharmacy game.

Dileo is the vice president of operations for the Louisiana Workers' Compensation Corporation.

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