Category: Pharmacy, PBMs, and Pharma costs

Jul
25

A creative way to generate work comp PBM revenue.

Posted by Joe Paduda on Monday, July 25th, 2022 | Comments

The work comp Pharmacy Benefit Management business has become hyper-competitive; total drug spend has dropped 6 of the last 7 years, there’s been massive consolidation of PBMs, margins are declining…all signs of a very mature industry.

Sounds like a not-very-attractive-business…right?

Well, due to accounting rules, PBMs are still wildly popular among work comp service companies.

They love PBMs because the companies get to count the cost of the drugs as well as their margins as top-line revenues – which makes those service companies look bigger than they really are.

The problem is…once you buy a PBM, you get a big one-time increase in revenue. But – and it’s a BIG but, unless you figure out how to grow that PBM revenue in a business that is declining, your top line flat-lines.

If you’re looking to sell your work comp service company, or otherwise tout strong financial performance, that is not a good look. Which brings me to a creative way a PBM is generating script volume without adding new payer customers.

Occ med clinic giant Concentra’s providers are writing scripts that direct the pharmacy filling the script to send it to Mitchell Pharmacy Solutions for administration.  (I looked for a company link, but couldn’t locate any mention of Concentra’s OccuScript program on their website)

According to Concentra, the OccuScript program:

  • has been in place for quite some time;
  • is mostly – but by no means exclusively – used in states where physician dispensing is not allowed (e.g. Texas);
  • appears to primarily address initial prescription fills which are mostly generics prescribed for a limited time;
  • about one of every nine scripts written in the company’s 520 clinics and 120 onsite centers flows through the program. Mitchell is the current administrator, providing network access and the claim adjudication platform. To be clear, Mitchell does not use its own pharmacy network…they contract with Script Care.

Injured workers treated at this clinic may be – or more likely are not – covered by a payer that contracts with Mitchell. (Mitchell is one of several work comp PBMs  – and far from the largest.) If it’s a Mitchell-contracted payer this form/process is helpful indeed.

In an email conversation with Concentra, the company noted “OccuScript supports medication compliance which is fundamental to evidence-based care delivery and positive patient outcomes.”  (note Concentra stated in an email “We have national employer customers whose injured workers are never processed through the OccuScript program…(some payers instruct Concentra on how to process scripts for their injured workers.))

Medication compliance is important indeed, but there are several potential issues/concerns/problems if the injured worker is NOT covered by a Mitchell-contracted payer.

  1. The payer gets a bill from a non-contracted billing entity which adds a lot of work for claims adjusters who have to figure out what to do with it.
  2. Unlike scripts processed by the PBM contracted by the injured worker’s employer/insurer/TPA, the payer finds out about the script AFTER it is dispensed. The drug(s) actually dispensed may – or may not – be:
    1. duplicates of other scripts,
    2. contra-indicated due to other drugs prescribed for the injured worker (while prescribers are supposed to ask about other meds, many patients aren’t able to recall drugs they are taking), and/or
    3. an expensive version of the prescribed drug (there are literally dozens of companies making ibuprofen, many at different prices for the same pill; contracted PBMs control for this with MAC lists.)
  3. The injured worker’s payer/employer/insurer is usually billed at a rate that is higher than their contracted PBM price – sometimes MUCH higher…driving up the employer’s/insurer’s/taxpayer’s work comp costs.
  4. Concentra’s OccuScript contracts with Mitchell who in turn contracts with Script Care…
    1. all of whom have to get paid,
    2. and adding communication challenges as issues have to pass through several entities.

So what to do?

Concentra avers it is ready and willing to work with payers and employers to route scripts to their PBM. It is also interested in working with PBMs. Sure, most “first fills” are “one and done”…but many are not. Getting on the claim as quickly as possible is an industry-wide best practice.

Note – Concentra execs were quite responsive to my queries about the program; kudos to CEO Keith Newton and Charles Bavier – who runs Concentra’s OccuScript program – for jumping on this.

What does this mean for you?

If you aren’t a Mitchell Pharmacy Solutions customer, get with Concentra ASAP to get those scripts routed to your PBM.

For those unfamiliar with this space…Insurers and TPAs hire Pharmacy Benefit Managers (PBMs) to ensure injured workers get the medications they need to recover and return to work. PBMs contract with pharmacies, operate call centers and employ pharmacists – all in an effort to deliver the right drug at the lowest possible price.

May
17

NCCI’s take on medical cost drivers, part 2

Posted by Joe Paduda on Tuesday, May 17th, 2022 | Comments

Last week I posted on Raji Chadarevian and Sean Cooper’s excellent presentation at AIS.

Here’s my what-this-means-for-you takeaways.

Drug spend decline

While NCCI’s reporting that dollars for drugs now account for 7 percent of annual isn’t too much of a surprise, there are a couple other factors at play here. First, the older claims are, the higher the drug costs.

During the 18-24 COVID months that were generally pretty awful, a lot of high-severity, higher-frequency jobs disappeared. Along with those jobs went a significant number. of high cost and cat claims (fewer workers; fewer claims). In what could best be described as a mirror image of the snake swallowing the pig (you know, the big slug of stuff/incidents/whatever works its way through the system), we’re going to see a long-term decrease in drug spend due to a decrease of X% in long-term claims incurred during COVID.

Obviously this will eventually work its way through the system…that said, it’s just one more bite out of pharmacy spend.

Similarly, rehab care and skilled nursing dollars will also decline along with home health care.

Peak network

With around 75% of physician and other treater dollars going through networks, we are at – or darn near at – peak network penetration. Some states – NY being a good example – are just not going to get there due to regulations on direction and very strong provider lobbying plus employers and insurers just aren’t pushing changes.

To be precise, that refers to overall network penetration – almost all work comp networks/PPOs have carve outs for specialty services.

I make the distinction because specialty network penetration will increase – at the expense of declining PPO penetration in specialty areas (PM, Imaging, DME/Home Health etc.). This will happen because those service areas lend themselves to more active management, often involve proactive scheduling, and  benefit from focused clinical management.

But, again that’s just one reason PPOs aren’t a growth thing – claims counts are declining and medical costs are flat too…

Oh, and big healthcare systems have A) figured out work comp is the golden goose, and B) are increasingly stingy with their discounts.

So, the average net discount after network fees (!!) is significantly lower than it was even five years ago.

 

 

Mar
24

Optum vs the Massachusetts Attorney General

Posted by Joe Paduda on Thursday, March 24th, 2022 | Comments

Several weeks ago Massachusetts’ Attorney General’s office put out a press release noting work comp PBM Optum had settled a civil case by paying $5.8 million and agreeing to “implement additional procedures to prevent overcharges in the future under the workers’ compensation insurance system. Optum Rx has also agreed to cooperate with the AG’s Office regarding monitoring of future regulatory compliance.”

Several clients contacted me to get my take, and as I’m involved in audits of multiple pharmacy programs any insights into the issue might be helpful.

The net – Massachusetts’ work comp RX fee schedules’ regulations are ridiculously difficult/impossible to implement, and Optum was treated unfairly by the AG’s office.

[note I’ve spent way too much time digging into this, and it is entirely possible I don’t have the full story – largely because the AG’s office chose to be unhelpful.]

I reached out to the AG’s contact multiple times in an effort to better understand the issue; when I finally got a return call, it was, well, less than useful. The attorney told me he couldn’t say anything beyond the press release due to the involvement of a confidential informant. [that’s a pretty universal excuse for not engaging and one I found less than helpful; I wasn’t asking how the AG learned about this, but rather specifically what Optum allegedly did wrong]

here’s the key section of the AG’s press release:

The settlement, filed in Suffolk Superior Court, resolves allegations that Optum Rx, in some circumstances, failed to apply various regulatory benchmarks – like the Federal Upper Limit for Medicare and the Massachusetts Maximum Allowable Cost – to its pricing determinations for certain workers’ compensation insurance prescription drug charges.[emphasis added]

After some back and forth, in which I explained the release wasn’t clear, he informed me [paraphrasing here] that “anyone who knows the Mass work comp pharmacy fee schedule understands the significance of the ACA FUL and Mass MAC…”

I got a bit huffy with his borderline rude retort, and informed the gentleman that in fact:

  • A) I did “know” the Mass WC Rx fee schedule;
  • B) I have a pretty solid understanding of pharmacy fee schedules and reimbursement in general; and
  • C) if I couldn’t understand it, then I’m pretty sure most work comp payers and other stakeholders couldn’t either.

So, I called contacts at Optum to get their side of the story.

The net is, according to Optum – and other PBMs I’ve spoken with – the fee schedule wording is unclear, subject to interpretation, neigh on impossible to implement and therefore highly problematic.

From Optum:

  • Defining and Implementing the Commonwealth’s “Usual & Customary” definition – The provision as written is unclear and guidance on interpretation/implementation was not supplied in a manner that allowed all stakeholders to be successful.
    • 101 CMR 331.02  – “Usual and Customary Charge. The lowest price that a provider charges or accepts from any payer for the same quantity of a drug on the same date of service, in Massachusetts, including but not limited to the shelf price, sale price, or advertised price for any drug including an over-the-counter drug. If an insurer and the provider have a contract that specifies that the insurer will pay an average or similarly computed fixed amount for multiple therapeutic categories of drugs with different acquisition costs, the fixed amount will not be the provider’s usual and customary charge.”

      My take       – this is nonsensical and impossible to manage – for a whole host of reasons.
      Taking this literally, a PBM would have to A) know the amount accepted for reimbursement for B) each and every drug at C) each and every retail pharmacy. Note that the Commonwealth’s definition of U&C specifies the “lowest price that a provider…accepts from any payer…” As PBMs and other payers don’t instantly adjudicate claims and don’t know what amount a retail pharmacy ultimately “accepts” for a particular script, there is no way to comply with this requirement. [retail pharmacy bills are rarely paid on the day the script is dispensed, but paid in accordance with each PBM contract – it could be weekly, biweekly, monthly, or at another time.]Example – an Optum patient goes to Walgreens on Tuesday, gets her script for 30 tabs of 800mg ibuprofen. Did Walgreens know and transmit to Optum the lowest price it accepted for that drug on that day at that pharmacy?
      Of course not.

       

  • Understanding of contracts between the traditional triad of pharmacy/PBM/comp payor – The Commonwealth’s interpretation of how payment agreements (within the specific context of MGL c. 152, Section 13) should run between those entities is, frankly, unique in relation to how other jurisdictions operate.
    In English, what Optum is saying is the Commonwealth thinks contracts should be three-way – PBM, pharmacy, and payer/PBM customer.
    That is patently impossible; there are tens of thousands of employers and other entities contracted with PBMs, which in turn contract with thousands of pharmacies.

From the AG press release:

“Our workers’ compensation insurance system has specific processes in place to help ensure drug pricing is handled fairly, maintains transparency, and keeps costs down,” AG Healey said.

My view – well, no.

If I read this interpretation right, Massachusetts wants something no other state does to solve a problem that no other state seems to think exists.

I suspect the AG’s office is also pursuing similar litigation against other PBMs – and more’s the pity, because from what I have been able to learn, the AG did NOT handle this “fairly”.

If that’s a misinterpretation, it’s due to a lack of responsiveness and clarity from the gentleman from the AG’s office who chose to NOT be “transparent”.

What does this mean for you?

If you’re a PBM, make sure you’re on top of this.

[note – Optum is not a client, and we’ve actually crossed swords several times of late. Regardless, from what I can tell Optum did NOT attempt to drive “up costs and…unlawfully profit.”]

note 2 – happy to re-engage with the AG’s office at any time.

Jan
4

2021 predictions – How’d I do?

Posted by Joe Paduda on Tuesday, January 4th, 2022 | Comments

It’s time once again to see how I did on my 2021 predictions for workers’ comp.

Today we’ll dive into the first 5 and finish up with the last 5 tomorrow.

  1.  Total premiums will stay low.
    As employment, payroll, and injury rates all remain under pressure, total premiums will remain significantly lower than we’d expect in a non-COVID, non-recession environment. We are also on the tail end of the opioid cost bubble, with actuarial projections still over-compensating for what was rampant overuse of opioids.
    Unemployment will persist at least thru the first half of 2021 – and likely the first three-quarters – helping to keep premiums lower. There are some predictions that employment will ramp up towards the end of the year; let’s hope so.
    Implications abound.

    Verdict – True. Wages did increase significantly (Good news indeed for hospitality, leisure, construction, logistics, healthcare and retail workers!) but premiums and rates mostly dropped. Florida, California, and other states saw decreases, continuing a decade (or so) long decline in rates and premiums.
    Note – Actuary Mark Priven – and I – both believe rates are still too high.

  2. Facility costs will spike.

Hospitals are in dire financial straits, with 2021 bringing no respite from the cash crunch experienced by the entire industry when people avoided facilities, put off elective procedures, or weren’t able to get care due to facility restrictions.
As desperate financial managers look high and low for any and all revenue sources, you can bet your house they’ll be focused on workers’ comp. Payers have:

    • few effective price or utilization controls;
    • an often-lackadaisical approach to cost management;
    • bill review programs and processes hopelessly outclassed by sophisticated revenue maximization technology; and
    • management that doesn’t know that it doesn’t know;

thus payers are going to see facility costs – already the largest part of medical spend – jump.

Verdict – too early to tell. We won’t know until we get 2021 data, which will be sometime in mid-Q2 for most states. I’ll go out on a limb and double-down on my prediction; facility costs – as a percentage of total spend – have increased significantly in 2021

3. Consolidation
Seems I’ve been forecasting increased industry consolidation for years…it’s not a prediction but more acknowledgment of reality. Workers’ comp is a declining industry with shrinking claim counts and flat expenses – and that isn’t going to change.

COVID has accelerated the process dramatically; with claim counts down 15-20%, there are fewer claims to adjust, fewer services to medically manage, fewer bills to pay, fewer dollars to compete for.
Because there will be fewer revenue and premium dollars next year than this, more consolidation is inevitable.
I expect this to be most pronounced among medical management firms and TPAs, and the big to get bigger. Genex/Mitchell/Coventry, Sedgwick, Concentra are all likely consolidators. Not sure about Paradigm.

Verdict – True. Paradigm has bought HomeCareConnect; Enlyte (Mitchell/Genex/Coventry) acquired QualCare (and reports indicate Enlyte is for sale); and Sedgwick is buying up tangential businesses (JND Legal Administration, Temporary Accommodations, Managed Care Advisors, and several other firms).

4.  Drugs will re-emerge as a significant problem
After several years of declines in opioid prescription volumes, it looks like things headed in the wrong direction last year.
Prior Auth requirements were relaxed, refills extended, and states loosened restrictions on prescribing. Add to that patients weren’t able to get to their PT visits and surgeries were postponed. The result – I expect we’ll see drug costs in 2020 flattened out, and opioid usage actually increased (We will know a lot more in mid-late March when I complete my Survey of Drug Management in WC).
That was last year; as COVID is returning with a vengeance, expect to see continued increases in 2021.

Verdict – False. Drug costs continued to drop in 2020 and reports from multiple industry contacts indicate that continued into 2021.

5. COVID claims aren’t going to be costly.

Despite all the caterwauling we heard back in 2020, COVID costs have been minimal. That will not change. Yes there will be long-haulers, but those will be very few indeed. Yes there will be more claims, but most will cost just a few thousand dollars.

Verdict – True. All credible research and reporting indicates COVID claim costs have been pretty low. Not surprising to those who actually have a grasp of healthcare cost drivers and treatment expenses.
More on costs here, here, and here.

The Net – 3 True, 1 False, and 1 pending.

What does this mean for me?
I’ve got to relook at my thinking re drugs and drug costs. I know as much about drugs in workers comp as anyone, and I clearly got this one wrong.  

Oct
25

What happened while some of us were in Las Vegas

Posted by Joe Paduda on Monday, October 25th, 2021 | Comments

WCRI posted lots of excellent research, and topped it off with a webinar…I’ll be diving into these later this week, but for those chomping at the bit, here’s a brief summary.

The research included a:

…and an excellent webinar o the effects of Opioid-related Policies on Opioid Utilization after Work-related Injuries – you can watch the webinar here – no charge!

PhRMA appears to be holding off efforts to enable the government to negotiate drug prices for Medicare and Medicaid members; the $22.4 million it spent on lobbying is a pittance compared to the profits the industry is generating. Three Democrats in states with lots of Pharma companies appear to be holding things up, soaking up big bucks in campaign donations in the process.

And then there’s COVID…

New research indicates “natural immunity from a COVID-19 infection fades quickly, leaving individuals susceptible to reinfection.” Published in The Lancet, the study found a previous COVID infection does not provide much protection against re0infection.

Research published by the Kaiser Family Foundation indicates 90,000 of our family members, dear friends, colleagues and co-workers didn’t have to die of COVID.  That’s the estimated number of additional deaths due to failures to be vaccinated.

Oh, and the number of vaccinated people who died of COVID was tiny by comparison, so don’t believe that BS about Colin Powell.

Health systems are ramping up terminations of  workers who refuse to get vaccinated  – but the number of employees fired remains pretty low.

What does this mean for you?

WCRI does great work.

Get vaccinated and wear a mask.

Oct
1

Friday catch up

Posted by Joe Paduda on Friday, October 1st, 2021 | Comments

Let’s spend a minute on all things workers’ comp – and one COVID note.

First up, the fine folk at WCRI – in particular the eminent Bogdan Savych PhD – are putting on a free webinar on the

Effects of Opioid-Related Policies on Work-Related Injuries

– register here. This is particularly helpful for me; I’m helping out on a Federal research project comparing outcomes, impacts, and patient experiences from opioid programs and regulations in Washington and Ohio. Thanks to all taxpayers for helping fund this project – this is some really interesting work that I am quite sure will increase our understanding of opioid management.

NCCI just released their annual analysis of work comp industry reserves… And boy oh boy are there are a LOT of extra reserves sitting in payers’ coffers.

Key takeaway – NCCI-projected industry loss and LAE ratios continue to be below those reported by carriers.

Said another way, carriers are NOT releasing these excess reserves in the form of dividends or credits or whatever. My take – carriers are salting away dollars to protect their future profits from the inevitable – but much delayed – market turn.

While one may think this is a one-time difference between carriers and NCCI, the data clearly shows otherwise.  Over the last decade insurers have consistently over-estimated claims and admin costs  – especially from 2014 to 2017. (graph courtesy NCCI)

So here’s my take – carriers are over-reserving because their actuaries haven’t yet figured out the rapid decrease in opioid utilization is having a major impact on claim duration, indemnity expense and medical costs. Carriers were well behind the curve when opioid use exploded in the middle of the last decade, and they are repeating that error now on the downside.

As a long-time – as in 27 years – consultant, I’m always on the lookout for advice for clients about working with consultants. Great piece in Harvard Business Review on that topic…key takeaways are consistent with my experience:

  • first and most important, spend the time to define the problem(s) you are looking to solve for. That will save untold weeks – and thousands of dollars billed
  • all parties should be humble and very open-minded – including the consultant
  • don’t assume you know the solution; going to RFP should be an option, but not the first one to address a market need, performance issue or vendor problem

File this away and pull it out next time you look to engage a consultant – me or anyone else!

One COVID fact check…I’ve heard from a couple folks that migrants on the southern border are a major source of COVID infections – partially because they aren’t being tested. Well, all are being tested, and the test positivity rate is actually much lower than among residents of border counties.

(note that a recent report indicating 18-20% of migrants leaving Border Patrol custody tested positive specifically includes ONLY those migrants targeted for “expedited removal” and thus is not a complete sample of all migrants)

While those two data points don’t completely address the assertion that migrants are the cause of infections (and there’s no way to prove or disprove that assertion) – it is clear that COVID infections in those border counties would be a lot lower if more residents wore masks and were vaccinated.

What does this mean for you?

Always check your sources, be humble, and do your research.

Sep
9

The state of the industry – pharmacy management in workers’ comp.

Posted by Joe Paduda on Thursday, September 9th, 2021 | Comments

29 payers responded to this year’s Survey, ranging from very large TPAs to small state funds, from small guarantee associations to large insured employers and insurers. As always, no individually-identifiable information is disclosed or contained in the Survey report.

Here’s the key takeaways from our 17th Annual Survey of Prescription Drug Management in Workers’ Comp.

  • Total work comp drug spend for 2020 was about $3 billion, or about 10% of total medical spend.
  • That’s down from $4.8 billion a decade ago.
  • Opioid spend decreased 19.3% from 2019 to 2020
  • Pharmacy management remains important despite these decreases, primarily due to respondents’ view that drugs have a disproportionate influence on claim outcomes and disability duration.

You can download your copy of this year’s Survey here – just click on “resources” at the top. Previous Surveys are also listed and all are free to download.

Note that the public version at the link is not as extensive or detailed as the respondent version. As respondents invest time, energy, and brain power helping with the Survey, they get the detailed version.

 

Aug
10

Opioids, tapering, and risks – what you need to know

Posted by Joe Paduda on Tuesday, August 10th, 2021 | Comments

WorkCompCentral’s Mark Powell penned an excellent piece on just-released research on tapering long-term opioid patients.

One finding demands our attention; researchers found a statistically significant increase in overdoses and mental health crises in the 12 months after tapering was concluded. On average, these adverse events (science talk for bad stuff) happened 6 months after tapering concluded.

From the JAMA article:

In the current study, tapering was associated with absolute differences in rates of overdose or mental health crisis events of approximately 3 to 4 events per 100 person-years compared with nontapering. These findings suggest that adverse events associated with tapering may be relatively common and support HHS recommendations for more gradual dose reductions when feasible and careful monitoring for withdrawal, substance use, and psychological distress. (emphasis added)

The study included 114,000 patients who had been on stable, higher doses (50+ morphine equivalents) of opioids over an 11-year period. It came on the heels of two chronic pain studies published earlier this year; one addressed opioid treatment for chronic pain and the other was a meta-analysis of 190 studies focused on non-opioid treatment. I wrote about both here.

Tapering is an opioid management approach involving a steady decrease in opioid dosage over a prescribed time. The decreases in dosage and how fast patients were tapered varied significantly among the patient population; patients who were on higher doses before tapering were at increased risk for adverse events.

There were some limitations in the study including; the population was Medicare Advantage and commercially insured; individual patient tapering may have varied after the initial decrease; and the data didn’t indicate if the prescriber or patient initiated the tapering.

A thoughtful and detailed discussion of tapering is here…in part the paper states:

The authors emphasize that any medical action taken should involve as much patient buy-in as possible and should not be driven by rigid opioid dose cutoff s and misinterpreted guidelines. The authors of this paper also support sustaining patients on their existing medication at its existing level if patients are continuing to benefit from use, are not experiencing significant side effects, and express the desire to remain on their current medication as opposed to pursuing a taper. In such cases, the risks of a taper would outweigh the potential benefits.

Regardless, this is a wake-up call to the industry. Yes, workers’ comp – once the addiction creation industry – has made great progress in reducing inappropriate opioid usage and some progress in helping long-term opioid patients reduce or eliminate opioids.

That said, there are a variety of opioid management approaches, and we should be considering – and open to – any and all.  Medication-assisted therapy involving methadone or buprenorphine, physical therapy, acupuncture, yoga, and talk therapy are among the approaches that have shown promise.

I’ll end quoting myself from a post back in 2019;

we need to make very sure we are doing the right thing for patients. In some instances this will involve telling patients what they don’t want to hear; we need to be prepared to do that and help them thru the process, while understanding that process is very difficult.

Jul
20

Transparency in drug pricing

Posted by Joe Paduda on Tuesday, July 20th, 2021 | Comments

One of the top issues in work comp pharmacy – heck in all pharmacy – is transparency.

More than half of the 27 respondents to our latest Survey pf pharmacy management in workers’ comp want more transparency, while several others “need more transparency as I don’t feel comfortable not knowing if pricing is fair.”

The question is – what exactly is “transparency?

Is it the customer knowing what the PBM paid for the drug?

What about rebates?

Is it knowing what the pharmacy “charged” the PBM for that drug (which may or may not be what was paid)?

What about MAC pricing (Maximum Allowable Cost), where the PBM fixes the price it pays for a type of drug, say ibuprofen 800 mg, at a flat rate regardless of the drug manufacturer’s AWP price (there are lots of companies making ibuprofen 800mg)?

Net is “transparency” isn’t quite transparent.

What does this mean for you?

If you are evaluating PBMs, make very sure you understand exactly how they define transparency.  The best way to compare is to have them reprice specific drugs from the same pharmacy dispensed on the same day.

 

Jul
16

What’s the end game for Injured Workers’ Pharmacy?

Posted by Joe Paduda on Friday, July 16th, 2021 | Comments

IWP has been a pain in the butt for work comp payers for years. The company’s business model is predicated on getting prescribing doctors and claimant attorneys to have their patients/clients get their meds from IWP.

There are a bunch of potential issues with this, including:

  • there’s no opportunity for the payer to prevent an inappropriate or even dangerous script;
  • clinical management may be significantly compromised;
  • prices can much higher than a similar medication at a retail drug store; and
  • IWP’s billing creates huge headaches for adjusters, clinical managers, bill processors.

While IWP has claimed it manages the clinical aspects of drugs, it also paid $11 million to settle charges filed in Massachusetts ; Attorney General Maura Healey said:

“They  [IWP] dispensed thousands of prescriptions for dangerous drugs, including opioids like fentanyl, with a shocking lack of regard for whether those prescriptions were legitimate,”

WorkCompCentral’s William Rabb wrote an excellent summary of the MA case here;  Rabb noted IWP allegedly “paid referral fees to doctors, claimants’ attorneys and others in exchange for the names of injured workers who were candidates for pain medication…” [I also mentioned this here.]

Just last month, Business Insurance reported Bridgewater, Massachusetts-based Keches Law Group P.C.:

admitted in a consent judgment filed in Suffolk Superior Court that it referred about 800 of its clients and potential clients to Injured Workers Pharmacy LLC to fill prescriptions in exchange for about $90,000,

Keches allegedly entered into two agreements with IWP in which the pharmacy paid for the firm to participate in an X1 racing event and a yacht outing, and picked up the $24,000 tab for a holiday lunch in exchange for referrals, according to court documents.

A Louisiana case involving a $13,111 bill submitted by IWP provided other insights into IWP; according to the article in WorkCompCentral an attorney for IWP’s opponent “said claimants attorneys like to use OWP because they know it will inflate drug prices, thus increasing the value of medical benefits and, as a result, their own fees, which are 20% of benefits awarded.”

While some payers in some states have successfully challenged IWP’s demands for payment, overall the company has more often than not gotten paid for scripts it claims were dispensed to claimants – and in some cases won legal judgments to that effect.

At some point its owner will want to sell and move on. The question is, who will buy it?

I don’t see a PBM buying IWP; the PBM’s clients would likely not be pleased, unless the PBM promised to reform things.

But – and its a really big BUT – if the PBM, or any other buyer for that matter, substantially changed IWP’s business model to make it more “payer friendly” that may well reduce IWP’s cash flow and profits. IWP’s owners’ expectations for a sale price would be based on IWP’s earnings – earnings that may well suffer if the business model changes.

Then there’s the company’s legal history; investors hate potential future legal problems almost as much as a business model that isn’t sustainable [not saying IWP’s isn’t, but not if a PBM buys it]. Given the most recent legal situation was just last month, any buyer is going to be very very careful.

Most PE firms look to exit and make 3+ times their original investment. That looks to be a very heavy lift. Of course, IWP could change its business model to be more payer friendly and a bit less…enthusiastic about compensating docs and attorneys. But any move like this would take a lot of time, require extremely careful planning and execution, and is not guaranteed to preserve profits.

What’s weird about this is CEO Michael Gavin was a good friend, someone I liked, admired and respected. I haven’t spoken with Michael in years…it would be awkward at best.

What does this mean for you?

Be wary of business models that work until they don’t.