Author: Joe Paduda

Jun
10

Can the surgical implant problem be fixed?

Posted by Joe Paduda on Thursday, June 10th, 2010 | Comments

According to Bill Kidd’s piece [sub req] in WorkCompCentral this morning, several states are attempting to address the rapidly growing problem of surgical implant device fees via regulation or legislation – by basing reimbursement on the manufacturer’s invoice. While it is great to see authorities paying attention to what has been a big problem for comp payers for several years, this solution may not be much of a…solution.
As I noted in a post a couple weeks ago;
“In several jurisdictions (including NY TX CA (working on a change) and FL) the basis for reimbursement is some version of the “documented paid amount” plus a handling fee of 10% or so up to a cap of a few hundred dollars (CA) or a percentage of the invoice amount (FL). Illinois is also contemplating a similar arrangement. [Bill notes that Minnesota is also looking into a fix]
The problem lies in the documentation of the paid amount. Most payers ask for a copy of the invoice, which, on the surface, makes sense – this is what was paid.
Not exactly. What the invoice doesn’t show can include:
– volume purchase discounts
– rebates
– “3 for the price of 2″ deals
– waste (some surgeons use the cage from one kit and screws from another, so the payer is paying for more hardward than is actually being used)
– internally developed invoices (documents prepared not by the supplier but by the provider)
This last point is the crux of the issue. Hospital systems often buy in bulk, with several implant kits shipped and billed; this obviously makes it impossible for the provider to produce the invoice for the device used in a specific surgery, as they never got one. Thus, many providers develop the invoice for a specific implant kit themselves.”
So, what to do?
I don’t see a legislatively-simple solution, or rather one that only requires a revision to existing fee schedule language. Requiring providers to disclose the ‘price’ is only practicable if they know what that ‘price’ is; as noted above, that often is difficult if not impossible to establish.
What states can do is require reimbursement at ‘cost’ plus something, allowing payers to work with specialty bill review vendors to determine what that ‘cost’ is. (HSA Client) FairPay Solutions provides this service; if there are others out there that can assist, let me know.
predictive modeling
And
artificial intelligence

Jun
9

CVS Caremark v Walgreens – Who’s going to blink?

Posted by Joe Paduda on Wednesday, June 9th, 2010 | Comments

This morning’s announcement by CVS Caremark that they are terminating their contracts with Walgreens in 30 days ups the ante in the ongoing battle between the two huge pharmacy firms. The decision came after Walgreen’s earlier announcement that it was not going to renew its contracts with the big PBM/retailer due to ‘irreconcilable differences’.
After Walgreen’s shot across CVS Caremark’s bow earlier this week, Caremark’s stock took a hit, dropping to its 52-week low after an 8% decline. Walgreens’ valuation has also suffered, altho less than CVS/Caremark’s.
There are a lot of moving parts here, which we’ll try to briefly summarize.
First, retail pharmacy chains have been suspicious of CVS Caremark ever since the two companies merged several years ago, concerned that the PBM (Caremark) would favor the retail chain (CVS) over other retail chains, such as Walgreens, Rite-Aid, and independents and food/drug combos including WalMart. Walgreens isn’t the only retailer complaining.
Second, we’re in the bidding and contracting phase for next year’s PBM contracts, and the loss of Walgreens’ 7500 stores will throw a rather large X factor into big buyers’ decision matrices. How that plays out has certainly been thought through at both companies; what actually happens will determine who ends up on top.
Third, Caremark will also terminate Walgreens from at least one of their Part D offerings. The fallout from this will be much less clear-cut; seniors may well stick with the retail store where they’re comfortable and feel taken care of, and move to a competing PBM that includes Walgreens.
Fourth, staff are likely dancing in the halls at Caremark competitors Express and Medco; both companies have seen a slight uptick in their stock prices, and the timing couldn’t be better for their sales efforts.
What’s going to happen?
Some think Walgreens is going to blink. Caremark’s business accounts for 7% of Walgreens’ revenue, and that doesn’t include the additional sales from Caremark members who pick up essentials along with their scripts. That’s a lot of revenue. Walgreens has a bit of a history of backing down; we’ll see.
Others are of the mind that Walgreens wouldn’t have pushed it this far, this publicly, if they weren’t fully prepared to end the relationship. Walgreens has certainly calculated the margins on this revenue, estimated how much they’ll keep, and decided they are better off losing lower margin business today, and certainly have assessed Caremark’s future strategy and decided things were only going to get worse. Better to cut their losses now and move on than to slowly bleed.
If the latter is indeed the outcome, Walgreens will certainly have to push retail and one-to-one marketing much harder. They will have to convince consumers that they are better served by Walgreens than any other pharmacy. That will take a significant investment on the marketing and promotion side over and above what’s been spent historically.
UPDATE – moments ago Walgreens released the following – it is increasingly clear that if there’s any blinking to be done, it isn’t going to be on the part of the pharmacy chain.
“We are disappointed but not surprised that CVS Caremark has taken this action. In making our decision not to participate in any new and renewed plans by CVS Caremark, we sought to minimize any disruption to existing relationships between pharmacists and patients. CVS Caremark’s move plainly contradicts its own statement on June 7 that their mission is to provide broad access and choice for consumers. Their patent disregard for patient choice and broad access reflected in today’s decision reinforces our conviction that it would not have been in the best interests of our patients, pharmacists or shareholders to grow our business with CVS Caremark. Regardless of CVS Caremark’s decision, we are confident of our ability to continue to grow our business as a provider in hundreds of other pharmacy benefit networks and as a direct provider to employers.”
Interestingly, no one thinks Caremark is likely to back down.
What does this mean for you?
A window into the coming battles between insurers and providers, with insights into employer- and consumer-driven buying.
predictive modeling
And
artificial intelligence

Jun
7

Walgreens fires CVS Caremark

Posted by Joe Paduda on Monday, June 7th, 2010 | Comments

Walgreens announced this morning it will sever ties with PBM giant CVS Caremark.
The news came in an announcement from Walgreens that identified several reasons for the decision including pricing inconsistencies, movement of patients frm Walgreens to caremark’s mail order program, and other business practices that appeared to favor CVS over Walgreens.
While I have no inside information on this, it undoubtedly came after a series of escalating discussions between the two companies, the last of which may have been ultimatums from both parties.
While some may see this as the last step in a game of brinksmanship, Walgreens would not have made this decision lightly; the change pushes a lot of buyers out of their stores, buyers who also purchase toiletries electronics and other goods that make up the majority of Walgreens retail sales.
What does this mean for you?
If Caremark is the network used by your PBM, start looking. Walgreens’ actions may inspire smaller pharmacy chains to rethink their Caremark relationships.

Jun
3

Government-run health care – how bad is it?

Posted by Joe Paduda on Thursday, June 3rd, 2010 | Comments

There’s been a minor flurry of articles about the Veteran’s Administration health care system recently, a flurry that is both welcome and a bit tardy. It would have been helpful indeed if these had come out during the furor over health reform. Better late than never.
Let’s tackle cost first. The CBO’s most recent report indicates the VA does a much better job controlling cost than the private sector delivery system (used by Medicare). According to the CBO,
“Adjusting for the changing mix of patients (using data on reliance and relative costs by priority group), the Congressional Budget Office (CBO) estimates that VHA’s budget authority per enrollee grew by 1.7 percent in real terms from 1999 to 2005 (0.3 percent annually) [emphasis added] .2 Though not the decline in cost per capita that is suggested by the unadjusted figures, that estimate still indicates some degree of cost control when compared with Medicare’s real rate of growth of 29.4 percent in cost per capita over that same period (4.4 percent per year).”
In contrast, the private insurance sector [pdf] saw premiums increase over 70% over the same period (I know this isn’t exactly apples-to-apples, but no matter how you slice the apple, 70% is still a lot more than 1.7%)
How about patient satisfaction? Again, the VA scores better than the private sector.
“In 2005, VA achieved a satisfaction score of 83 (out of 100) on the ACSI for inpatient care and 80 (out of 100) for outpatient care, compared with averages for private-sector providers of 73 for inpatient care and 75 for outpatient care…For VA, the scores for inpatient and outpatient care were 84 and 83, respectively, while the average scores for the private sector were 79 and 81.”
In the press, Maggie Mahar posted on Phillip Longman’s new edition of Best Care Anywhere; Why VA Healthcare is Better than Yours; quoting Longman’s foreword “Health care quality experts hail it [the VA health care system] for its exceptional safety record, its use of evidence-based medicine, its heath promotion and wellness programs, and its unparalleled adoption of electronic medical records and other information technologies. Finally, and most astoundingly, it is the only health care provider in the United States whose cost per patient has been holding steady in recent years, even as its quality performance is making it the benchmark of the entire health care sector.”
Merrill Goozner published an interview with Longman, who noted “In study after study published in peer‐reviewed journals, the VA beats other health care providers on virtually every measure of quality. These include patient safety, adherence to the protocols of evidence medicine, integration of care, cost‐effectiveness, and patient satisfaction. The VA is also on the
leading edge of medical research, due to its close affiliation with the nation’s
leading medical schools, where many VA doctors have faculty positions.”
Longman’s book is a timely update to his 2007 edition, providing new insights into the effectiveness of the VA’s VistA IT infrastructure and coverage of adoption by the private sector of VistA.
Another recent article noted the system is responsible for 24 million veterans (treating about 5.5 million last year), has a budget of “$50 billion and operates more than 1,400 care sites, including 950 outpatient clinics, 153 hospitals and 134 nursing homes.”
The piece quoted Elizabeth McGlynn, associate director of Rand Health and author of a study of the VA: “You’re much better off in the VA than in a lot of the rest of the U.S. health-care system,” she said. “You’ve got a fighting chance there’s going to be some organized, thoughtful, evidence-based response to dealing effectively with the health problem that somebody brings to them.”
Which brings up this question –
Where would you like to get your health care, and which inflation rate would you prefer?

Jun
2

News from North Dakota – some good, some weird

Posted by Joe Paduda on Wednesday, June 2nd, 2010 | Comments

Three items of interest from North Dakota – one quite positive, the others puzzling at best.
First, the good.
Sandy Blunt, former CEO of the NoDak work comp insurance fund, gave an excellent presentation on the current state of the work comp industry, with a strong focus on which claims are most important and most deserving of attention, and why they’re also the ones often missed. (I’ve been privileged to work with Sandy on several projects, and the presentation is a great example of how much value he brings.)
If you missed it (over 600 attended the webinar), the recording is here and the slides here. (use FINEOS as password, all caps)
Now, onto the weird. And yes, both also involve Mr Blunt.
Regular readers will recall Sandy appealed his conviction (on ridiculous charges) to the North Dakota Supreme Court fifteen months ago, with oral arguments heard seven and a half months ago. As of yesterday, the Supreme Court had not yet seen fit to issue a ruling in the case.
One has to ask why. Dozens of cases that were filed and argued after Blunt’s have been decided and those decisions released. The evidence is in, the arguments have been heard, there has been plenty of time for clerks to research precedents and judges to confer.
Yet no decision has been announced. Why not?
Even stranger, the prosecutor responsible for the conviction, Cynthia Feland, continues her electoral campaign for judge despite ratings from the North Dakota Bar Association that are lower than any other candidate. Perhaps the members of the Bar in NoDak are aware of some of Feland’s…issues.
Members of the ND State Bar Association were asked to rank, on a scale of one to five, the qualifications of attorneys running in contested state judicial elections’ professional competence, legal experience, judicial temperament, integrity and overall qualification.
Feland ranked lowest in every single category. Every one. And she was ranked lowest overall as well, with a 2.83 out of 5.00.
With the primary election scheduled for June 8 (a week from yesterday), Feland is hoping to be one of the top two vote-getters, a distinction that would put her into the general election in November.
Perhaps the Supreme Court is waiting on the results of the primary before announcing their decision. If that is the case, it is indeed unfortunate that politics would play any role in the judicial process.
If that isn’t the reason for this close-to-record delay, than what is?

Jun
1

Florida’s (repackaged) drug problem

Posted by Joe Paduda on Tuesday, June 1st, 2010 | Comments

Mike Whitely of WorkCompCentral’s article [sub req] on Florida Governor Charlie Crist’s veto of the bill limiting reimbursement for physician-dispensed repackaged drugs illustrates just how confusing the weird world of work comp can be to the uninitiated – like Mr Crist.
For those unfamiliar with repackaged drugs, here’s a quick primer.
First, recall drug costs in comp are driven more by utilization than by price, except in instances like this where price gouging is rampant.
Work comp drug fee schedules peg the amount paid for drugs to a multiple of AWP (except CA, which uses Medi-Cal); Florida’s is set at 100% of AWP plus a $4.18 dispensing fee for both generics and brand drugs. (As I’ve noted previously, there are major issues with the use of AWP.) But AWP is based on the drug’s NDC number, a code that can be created by the wholesaler. Thus, if a company wants to buy a million 800 mg ibuprofen tablets and repackage them into lots of 27, it can create it’s own NDC, and thus set its own AWP.
CWCI (California) research showed that the repackaged drug ranitidine (generic Zantac) was priced at $255.56 for 150 mg. pills, compared to a retail pharmacy’s cost of $25.90 and Drugstore.com’s $19.71; the difference in markup on the ingredient cost between physician dispensing and pharmacy dispensing was about 1700%. Naproxyn (Aleve) markup averaged 1000%, Vicodin 750%.
Since California figured out how to prevent entrepreneurs making a fortune by repackaging drugs, the repackagers moved into other states. Florida is the current target; the latest Survey of Prescription Drug Management in Workers Comp indicated this is also a big problem in the upper midwest and southwest. Some states, including Texas and New York, specifically prohibit physician dispensing.
Florida’s drug costs were recently analyzed by WCRI, which reported:
“…the average payment per claim for prescription drugs in Florida’s workers’ compensation system was $565–38 percent higher than the median of the study states.
The main reason for the higher prescription costs in Florida was that some physicians wrote prescriptions and dispensed the prescribed medications directly to their patients. [emphasis added] When physicians dispensed prescription drugs, they often were paid much more than pharmacies for the same prescription.
The WCRI study, Prescription Benchmarks for Florida, found that some Florida physicians wrote prescriptions more often for certain drugs that were especially profitable. For example, Carisoprodol (Soma®, a muscle relaxant) was prescribed for 11 percent of the Florida injured workers with prescriptions, compared to 2 to 4 percent in most other study states.
Financial incentives may help explain more frequent prescription of the drug, as the study suggested. The price per pill paid to Florida physician dispensers for Carisoprodol was 4 times higher than if the same prescription was filled at pharmacies in the state. [emphasis added]
The study reported that the average number of prescriptions per claim in Florida was 17 percent higher than in the median state. [emphasis added] Similar results can be seen in the average number of pills per claim.”
Physician dispensing is not all bad; there’s something to be said for ensuring the patient receives the right drug on the way out of the office, improving compliance and reducing the patient’s hassle factor.
Crist, who is going to be running as an Independent for re-election this fall, may have bowed to pressure from lobbyists working for physicians and repackagers. He certainly wasn’t trying to ingratiate himself with business; several larger employers were reportedly behind the measure.

So, what do you do about this?
Some payers are rewriting their provider contracts to specifically ban physician dispensing. Others are unilaterally cutting reimbursement to the ‘non-repackaged’ level. Another tactic is to notify contracted physicians that no new patients will be directed to them if they bill for repackaged drugs.
As Florida is an employer-direction state, payers have a lot of control and influence over physicians.
Use it.

May
28

Memorial Day and the VA

Posted by Joe Paduda on Friday, May 28th, 2010 | Comments

A quick post to express a heartfelt thanks to all who serve our country.
It is our responsibility as a nation to ensure they are taken care of, and it is gratifying to see the great strides made by the Veteran’s Administration’s health care system in improving quality and access to care. Sure, they have their problems, but those problems have to be considered in light of the overall strength of the system and the quality of the work performed by the VA’s dedicated staff.
Have a great weekend.

May
27

HWR is waiting for your attention

Posted by Joe Paduda on Thursday, May 27th, 2010 | Comments

David Williams – one of the smarter people in the health care business – hosts this week’s Health Wonk Review.
David keeps it brief while still adding his own take on contributors’ posts.
See you there.

May
26

Surgical implants – why the ‘price’…isn’t

Posted by Joe Paduda on Wednesday, May 26th, 2010 | Comments

As states take on the growing problem of surgical implant costs – the latest (and arguably greatest) effort by certain providers to reap huge profits from workers comp payers and employers, it’s time to delve into the problem – and why a ‘solution’ isn’t near as simple as we’d like.
First, how much are we talking here?
The current world-wide market for orthopedic implanted devices (a subset of the larger implant market) is in the $17 billion range, and growing at just under 10 percent a year. IN California alone, a RAND study indicated work comp payers alone are overpaying about $60 million a year for surgical implants. My guess is work comp payers are paying for a much greater percentage of implants than their overall 1.5% of the US health care market would indicate.
Spinal implants are a particularly popular item in comp – for details on this click here.
This isn’t new news; back in 2008 I posted on what was then a rapidly-growing problem. It’s taken till now for many payers to attempt to solve the problem, but their solutions are what I’d characterize as ‘first-generation’.
Payer solutions to date have relied on two general approaches – basing reimbursement on the ‘invoice’ and/or a payer-specific database of historical reimbursement for devices. Of course state fee schedules also play a large role. To the extent a fee schedule addresses implants, the methodology is usually based on some variety of invoice-based pricing, such as the manufacturer’s price to the hospital/facility plus a markup plus shipping and handling.
Logical, right? Transparent, right? Simple, right?
No.
Payer databases are derived from historical billing information, information that (as I’ll illustrate below) is likely highly inaccurate. Therefore, basing reimbursement for the next device on past devices is fatally flawed.
Why?
In several jurisdictions (including NY TX CA (working on a change) and FL) the basis for reimbursement is some version of the “documented paid amount” plus a handling fee of 10% or so up to a cap of a few hundred dollars (CA) or a percentage of the invoice amount (FL). Illinois is also contemplating a similar arrangement.
The problem lies in the documentation of the paid amount. Most payers ask for a copy of the invoice, which, on the surface, makes sense – this is what was paid.
Not exactly. What the invoice doesn’t show can include:
– volume purchase discounts
– rebates
– “3 for the price of 2” deals
– waste (some surgeons use the cage from one kit and screws from another, so the payer is paying for more hardward than is actually being used)
– internally developed invoices (documents prepared not by the supplier but by the provider)
This last point is the crux of the issue. Hospital systems often buy in bulk, with several implant kits shipped and billed; this obviously makes it impossible for the provider to produce the invoice for the device used in a specific surgery, as they never got one. Thus, many providers develop the invoice for a specific implant kit themselves.
There’s another problem with implants – when they are defective, the patient has to go back in for more surgery. And the WC insurer has to pay. The only way to mitigate risk is to track the model and manufacturer for each implant – yes, it’s work, and yes, it’s work worth doing.
Finally, even the original invoice is for a device with a markup that is, well, huge. One analyst estimates gross margins are in the 80% range…driving profit margins that are the envy of any payer or health system.
(table from 600bn.com)
Industry-EBITDA-margins.jpg
Are we ready to get serious? According to a knowledgeable source, “At the end of the day, someone has to decide that ‘enough is enough’ – we won’t continue to pay more every year for orthopedic procedures unless we get vast improvements in patient care in return. Both Medicare and private payors appear like they might finally smell the proverbial blood in the water.”
Here’s hoping regulators and payers alike are also getting on the scent.
What does this mean for you?
Don’t reimburse based on the invoice. Period.