If specialty pharmacy is your ace in the hole, why worry? How four MCOs are managing biologic products.
Abstract
With the number of market-approved biotech drugs approved by the U.S. Food and Drug Administration expected to jump soon, health plans are scrambling to redesign benefit structures, manage utilization, and get a handle on the costs of these new therapies. Here’s how four health plans are addressing these issues.
Should health plans worry about managing biotech drugs? With at least 2 to 4 years still to pass before the hundreds of products in the pipeline hit the market, why not hire a specialty pharmacy and leave it at that? After posing such questions to several health plans, we got some insights into why a different approach may be in order. These organizations are taking advantage of new strategies that they say will yield substantial dividends in a few years.
The high cost of biotech agents is reason enough to pay close attention to how and by whom they’re administered. Claims payouts for biotech therapies are sufficiently high to be getting notice from health plans, says Robert Seidman, PharmD, MPH, vice president and chief pharmacy officer at WellPoint Health Networks.
“Every biotech drug I see costs $12,000 to $30,000 a year,” he adds. “They’re not yet at the point where they threaten the affordability of the benefit because they’re used in such a small subset of the population. The bigger issue is the drugs that we know are coming. We need to get our house in order so that we can protect the affordability of the benefit for these potentially life-essential drugs.”
For WellPoint members, that means paying 20 to 30 percent of the cost of biotech therapies. In addition, prior authorization and “all of the bells and whistles” that now apply to outpatient pharmaceuticals will apply to biotech drugs, Seidman says. For self-administered biotechnology drugs, WellPoint has built its own specialty pharmacy distribution center and contracts with other specialty pharmacy vendors when necessary.
Its in-house pharmacy benefit management unit, WellPoint Pharmacy Management, adjudicates these claims and obtains significant discounts that help protect the affordability of healthcare. Further, WellPoint applies care management programs to help assure the optimal outcomes that are associated with the use of these drugs. A voluntary program that encourages physicians to use specialty pharmacies should eventually transition into a mandatory program. Seidman believes that most providers will be happy to give up the financial risk of carrying an inventory of biotech agents, especially as they become more costly.
BUY OR BUILD?
Some health plans contract with outside specialty pharmacy companies, while others build that capability in-house. Similar to Well-point, Humana does both. According to William Fleming, PharmD, vice president of pharmacy and emerging technologies at Humana: “For our Florida Medicare product, we use our own specialty pharmacy facility there. For the rest of our business, we use AdvancePCS Specialty Rx.”
Humana’s goal is to provide prompt access to biotech therapies at the lowest price with the least waste. The plan has driven most of its specialty drugs out of high-priced venues — such as physician offices, hospitals, and home health — and into its specialty distribution channels. Humana amended contracts with home health agencies to reflect that change. Except for intravenous administration or in extenuating circumstances (such as a member who is unable to self-administer injections), members and/or their physicians obtain specialty drugs through the specialty distribution channel.
The big issue, says Robert Seidman, PharmD, MPH, vice president and chief pharmacy officer at WellPoint Health Networks, lies in preparing for biotech drugs that have yet to emerge from the pipeline. “We need to get our house in order so that we can protect the affordability of the benefit for these potentially life-essential drugs.”
PHOTOGRAPH BY MICHAEL JUSTICE
LAND MINES
Humana has had to negotiate numerous miscellaneous potential land mines as it set its course. One involves identifying capitated providers so Humana doesn’t pay for a therapy twice — once as part of a capitation payment, and again when a claim is submitted. Another is ensuring that specialty pharmacy facilities are equipped to handle biotech agents, many of which need refrigeration. Still another is communicating new distribution arrangements to network physicians. For example, instead of maintaining an inventory of filgrastim (Neupogen), an oncologist e-mails a prescription to Humana’s specialty pharmacy and collects the patient’s copayment. The product arrives at the physician’s office for administration to the patient after chemotherapy, or it is shipped to the patient’s home.
Many physicians, Fleming says, would rather not have to maintain an inventory of high-priced biotech agents with special storage requirements, even if it means losing the associated mark-up.
L. Peter Smith, CEO of Medmark Specialty Pharmacy in Pittsburgh, agrees. An inventory of drugs such as factor VIII inhibitors or intravenous gammaglobulin can tie up tens of thousands of dollars a month, he points out, and if receivables fall behind, a medical practice could risk insolvency. With the possible exception of oncologists, says Smith, most physicians are better off not taking these financial risks.
CODING ISSUES
Humana faces a common problem with new biotech agents that has to do with how they are coded for payment. Products that are not candidates for use by Medicare patients do not get a payment code from the Centers for Medicare & Medicaid Services and end up being billed under the unclassified drug code J-3490 — making it difficult to track expenses retroactively for biotech products. Another problem with J-codes is that it takes 12 to 18 months after the FDA approves a drug for the Healthcare Common Procedure Coding System (HCPCS) to issue a new code. That translates to still more claims with “dummy” codes (see “Decoding the Codes,” right).
Decoding the codes.
For payers, figuring out the cost of biotech therapies is complicated by the coding systems used to identify — or too often, not identify — the product being administered. Here’s a look at the differences between J-Codes and National Drug Codes, and why the difference matters.
Surprisingly, payers often don’t know how much they are spending on biologics because there’s no way to tease out the relevant information from the 5-digit J-codes that providers use on their claims. Why use J-codes, which are a subset of the Healthcare Common Procedure Coding System (HCPCS) claim codes, instead of the 10-digit National Drug Codes (NDC) used for pharmacy claims? Because claims for biotech therapies are medical claims, and medical claims systems, on both the provider and payer side, were set up to process J-codes.
“Anything you pick up at the neighborhood pharmacy and take by mouth was paid for out of the pharmacy budget, and anything administered in a doctor’s office was paid for out of the medical budget,” says Mark G. Fuller, MD, executive director of the Biotech Medical Management Association, a not-for-profit educational association of medical directors and pharmacy directors. “Unfortunately, J-codes don’t allow you to drill down to determine exactly what happened at the point of care, so health plans are really not clear how much they’re spending for biotech and biologic agents, how much is being used, or whether these therapies are being used appropriately.”
J-code nomenclature is “J” followed by four numerals, and describe the drug used and the quantity given. They do not identify the manufacturer of the drug, the formulation, or the strength. It typically takes 12 to 18 months after a new drug product is on the market before a new J-code or other HCPCS code is issued. Providers and payers are limited to using a miscellaneous J-code in the interim.
The NDC is a unique 10-digit, three-segment number that identifies the labeler/vendor, product, and package size. The FDA assigns the first segment, the labeler code. A labeler is any firm that manufactures, repacks, or distributes a drug product. The second segment, the product code, identifies a specific strength, dosage form, and formulation for a particular firm. The third segment, the package code, identifies package sizes. The labeling firm assigns product and package codes. The NDC will be in one of the following configurations: 4-4-2, 5-3-2, or 5-4-1.
Providers get into the act because biotech agents are administered subcutaneously or intravenously. Physicians, hospital outpatient clinics, and home health agencies maintain inventories of these agents, administer them to patients, and file claims — not only for services rendered, but also for substantially more than they paid for the actual biotech agent. These mark-ups can range from 200 to 400 percent, and higher.
Health plans manually price these J-code claims and don’t have enough information to verify the diagnosis code, the biotech agent, the number of units administered, or the average wholesale price of the product.
This lack of information could lead to problems. “If drugs are being used for the wrong indication or an unapproved indication, or a whole lot of extra drug is being shipped that doesn’t need to be shipped, those are abuses of the system,” says L. Peter Smith, CEO of Medmark Specialty Pharmacy, in Pittsburgh. “If you put in place well-devised medical protocols that can be reviewed prospectively, you’re going to get the proper use of the drug and the benefit of these drugs. It comes down to two things — quality care for the members, and the fact that health plans will save money because a lot of abuses will be taken out of the system.”
As more biotech drugs reach the market, the need to manage them will increase. “Five years ago, biotech agents probably represented about 1 percent of health plan pharmaceutical spending,” Smith says. “Today, it’s about 8 percent of total pharmaceutical spending, and it’s going to jump to about 15 percent by 2006. Each health plan is trying to figure out how to use these agents in a quality fashion for their members and — at the same time, to make sure that the spending and the usage are under some medical control.”
“We’ve still got our so-called dummy codes in play, but we’ve done a tremendous job of driving most unclassified drugs out of the J-Code process and into the world of National Drug Codes,” says Fleming. “Right now we have the lion’s share of all these products flowing through our specialty pharmacy.”
Paradoxically, getting a handle on biotech products has created an unanticipated challenge for Humana’s sales force. Instead of hiding somewhere in medical expenses, the cost of biotech products now properly shows up under pharmaceutical spending. Nonetheless, potential customers are quick to note that Humana’s pharmaceutical trend is about 3 percent higher than the competition’s. Even after Humana explains that the 3 percent represents otherwise buried millions of dollars in spending on biotech agents, prospects still quibble. It’s a tough sell — because a 3 percent higher pharmacy trend is a big deal — but a corresponding reduction in millions of dollars seems less significant when buried in a medical trend in which billions are spent on care.
Unintended consequences: Moving biotech drugs from the medical to the pharmacy side of the ledger has made Humana’s drug trend seem relatively high to customers, despite the corresponding offset in medical expenditures. “People make irrational judgments,” muses William Fleming, PharmD, Humana’s vice president of pharmacy and emerging technologies.
Where biotech drugs end up in Humana’s four-tier pharmacy benefit structure, however, is rational, and is determined individually for each product. Typically, biotech products go into tier four, for which members pay 25 percent in coinsurance with a $2,500 annual out-of-pocket maximum. But a drug that is likely to keep a member out of the hospital or shorten a hospital stay will probably be moved to a lower tier. Lovenox, for example, is in tier 3 because its 10-day to 2-week regimen costs about $800, or $40 to $50 in member copayment, instead of a $200 copayment in tier four: Humana would rather avoid a $1,000 hospital day than charge the member an additional $150.
Humana does not require prior authorization to verify that a physician’s prescription meets the FDA-approved indication. Most drugs are used outside of FDA labeling, so looking at FDA-approved indications and performing prior authorization does not add value to the system.
INCREMENTAL APPROACH
Deborah Whitehead, MHA, chaired a pharmacy strategy team at Tufts Health Plan, where she was assistant vice president of pharmacy services until November 2003. The team examined strategy and policy issues relating to pharmacy, including the growing volume of biotech products. It included the senior vice president for planning and development, the chief medical officer, the vice president for network management and provider contracting, the medical director for pharmacy, and assistant vice president for sales.
“It’s complicated, but you’ve got to put your toe in the water and start making some changes,” says White-head. For example, Tufts was among the first to use specialty pharmacy providers for better pricing, claims processing, and utilization management. Issues like copayments, coinsurance, and prior authorization are handled on a drug-by-drug basis. Other questions remain, like whether biotech drugs belong in the medical benefit or the pharmacy benefit for plans with self-insured clients, many of whom carve out pharmacy benefits.
“My thinking was that the way we move the industry is by educating the marketplace, our members, physicians, and employers,” says Whitehead. “We would try to be as responsive to inquiries as we could, because sometimes, you get burned when you’re leading the pack and making changes.”
PHARMACOECONOMIC ASSESSMENTS
Like WellPoint, Premera Blue Cross, in Washington State, contracts with specialty pharmacies, and providers can prescribe through them on a voluntary basis. Premera is studying its options in benefit design and coding, says Pharmacy Manager of Formulary Development, John Watkins, RPh, MPH. But Watkins brings up another management tool that’s getting lots of attention at Premera, one that will become increasingly important for health plans: pharmacoeconomic technology assessment of biotech drugs.
“These drugs are of course expensive and technologically sophisticated,” Watkins says. “They also tend to be more like laser beams than shotguns in their actions. A laser beam is nice if you know where to aim it, but if you miss the target, you get nothing. From a pharmacoeconomic standpoint, the cost-effectiveness of these drugs is very much dependent on getting them to the right patient population.”
That patient-therapy match can be trickier with biotech drugs than with traditional pharmaceuticals. For example, which patients with chronic plaque psoriasis would do better with alefacept (Amevive) or with efalizumab (Raptiva)? That’s one question Premera’s P&T committee is looking into. As more competing biotech products come to market, and as more are approved for secondary indications, there will be more questions about appropriate utilization. The Technology Evaluation Center at the Blue Cross Blue Shield Association does some of this research for Blues plans like Premera. Evidence-based practice centers at universities around the country are another resource. The inevitable product of this sort of technology assessment would appear to be some sort of formulary, but it’ll be a while before enough is known to optimally match agent with patient.”
EDUCATION NEEDED
Whitehead, who favors a separate benefit for biotech therapies, as does Watkins, says “It isn’t just that these drugs cost more. These drugs require a different level of responsibility on the part of the physician and on the part of consumers. Many side effects are as serious as the condition that is being treated. Some drugs require routine lab monitoring. It’s a very different set of expectations with these biotechs than just popping a pill.”
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Part D) opens a vast new market of high utilizers for biotech products. That legislation also establishes two new payment methodologies for biotech agents. Providers can choose reimbursement rates based either on manufacturer average sales price or through competitive bidding by drug vendors. The new law also includes higher provider reimbursement for administering drugs.
Specialty pharmacy can solve the pesky J-Code problem by handling claims for the health plan using National Drug Code numbers, while also minimizing waste and negotiating lower prices for biotech drugs. But the biggest advantage may be that specialty pharmacy vendors can take patient management off health plans’ hands.
“In the next year, you’re going to hear about some diseases that you will have to look up in the textbook, but drugs are being developed for them,” says Watkins. “A drug for Fabry’s disease came out recently called Fabrazyme, and the epidemiologists tell me that we will have 15 or 20 of these patients in our membership. It’s very difficult to develop a specialized disease management program for 15 people, but a specialty pharmacy that does that for the entire country can develop expertise in rare diseases.”