Building a Vehicle To Control Specialty Pharmacy Costs

Like many insurers, Blue Cross/Blue Shield of Tennessee feels the pain of soaring specialty drug expenses. Jane Havens, RN, was told to “Do something about it.” Her team developed innovative approaches to managing injectables – but only after it learned the extreme complexity of the situation.

Abstract

The trend lines skewing those reports on your desk indicate an ominous upward arc in specialty drug expenditures. Top management at the health insurer you work for tells you, ‘Do something about it.’ The author and her team responded with an innovative approach that effectively addresses coding issues, internal buy-in, and keeping members happy.

BlueCross BlueShield of Tennessee has taken a leadership role in building a vehicle to control expenditures on biotechnology drugs.

Jane Havens, RN, BSN

BCBST’s motivation for becoming a biotech payment innovator is simple: Healthcare costs, particularly those for prescription drugs, are extremely high in the Volunteer State. Tennessee residents receive an average of 17.9 prescriptions per year; the national average is 11.5 (Figure 1). The state’s third-party payers — including TennCare, the state’s healthcare program for 1.3 million poor, disabled, and uninsured residents — pay 86 percent of their members’ overall prescription costs, compared to a national average of 75 percent. BCBST commercial members pay about 30 percent of the cost of their prescription drugs; in contrast, TennCare members pay, on average, about 1.6 percent.^*

FIGURE 1.

Average number of prescriptions per member per year

Prescriptions per covered member, calendar year 2002

SOURCE: NOVARTIS 2003

The situation in Tennessee plays out against a backdrop of steadily increasing drug spending nationwide, driven by such factors as an aging population, faster drug approvals, and persuasive direct-to-consumer advertising. In addition, according to Steven L. Coulter, MD, BCBST senior vice president and chief medical officer, aggressive treatment guidelines also compose a powerful spending driver. Better knowledge of disease has led to greater numbers of diagnoses, improved diagnostic accuracy, redefinitions of disease state, and revised therapeutic recommendations.

Such advancements improve treatment, but also significantly expand the number of candidates for drug therapy. For example, when the American Diabetes Association redefined diabetes to include anyone with a fasting blood sugar level exceeding 126 mg/dL, the number of diabetics in the United States instantly increased by 2 million.

The rising cost of specialty pharmacy drugs — primarily biotech injectables — complicates matters. BCBST’s specialty pharmacy expenditure increased from $3.35 per member per month in 2001 to $6.25 PMPM in 2003, an 86 percent increase (Figure 2, page 38). With biotech therapies rapidly entering the market, this trend is likely to continue.

FIGURE 2.

BCBST injectables expenditures

Costs, per member per month

SOURCE: BLUE CROSS/BLUE SHIELD OF TENNESSEE INTERNAL DATA

TAKING ACTION

To control costs, BCBST established a specialty pharmacy evaluation team to study the key issues, develop strategies, build a network of specialty pharmacy providers, and implement solutions.

To design a successful program, you must establish a solid informational and philosophical foundation. This requires you to:

• Identify cost pressures.

• Develop medical policies and clinical protocols that ensure appropriate utilization of injectables and develop relevant medical management requirements, such as prior authorization or retrospective review.

• Consider various pricing strategies, such as discounts, average wholesale price (AWP), or cost-plus for biopharmaceuticals.

• Compare distribution options, which would include specialty pharmacy vendors, group purchasing organizations, and retail opportunities.

• Understand claims-processing challenges when determining whether specialty pharmacy products will fall under medical or pharmacy benefits.

• Standardize data.

The BCBST team set three simple goals: improve the efficiency and appropriateness of biotech drug dispensing; significantly reduce costs that result from inappropriate utilization and billing errors associated with biotech drugs; and improve data capture and the measurement of total health care costs and outcomes.

An individual with appropriate clinical and management skills — a dedicated project manager —should be accountable for establishing and running the specialty pharmacy program (SPP). The manager should learn the personality of the local healthcare market, evaluate pharmacy-plan expenditures for high-cost biotech drugs in all product lines, and analyze the effect of specialty drugs on provider networks, various physician specialties, and providers such as home-health care services and hospitals. The manager also should be able to assess potential savings from establishing a SPP; evaluate and select specialty pharmacy vendors; establish a specialty pharmacy network designed to increase the appropriate utilization of specialty drugs; and stay abreast of the rapidly expanding and evolving specialty pharmacy market.

DATA ANALYSIS

Launching a program to control specialty pharmacy costs ultimately may prove to be the easiest part of the process. Based on our experience, the hardest work is associated with identifying cost factors, planning effective cost-reduction strategies, and deciding how to accomplish goals without causing chaos in the organization or among clients.

One of the first — and most vital — tasks that the multidisciplinary evaluation team faced was the need to convert dissimilar, disjointed bits of information into a coherent, homogeneous format. Raw data mean nothing; the information derived from their analysis is everything.

As the third-party payer for 2.8 million commercial and TennCare members, BCBST had pharmacy benefit management and medical data for commercial and TennCare members in both PPOs and HMOs. (BCBST has since eliminated the HMO plan option.) The primary informational problem inherent in the system was that claims for specialty drugs were being made to BCBST using every conceivable coding system — most of which lack the precision of the National Drug Code (NDC). Converting raw CPT and HCPCS data to useful, NDC-level information took one year.

Because claims for biotech drugs are filed routinely as either ambulatory (pharmacy) or medical benefits, we needed to understand the organization’s data-collection and claims-payment system. This would help to facilitate the capture of ambulatory (pharmacy benefit) claims data that reveal dosage form and route of administration, as well as medical claims data submitted via CPT or HCPCS codes. Early on, it became clear that clinicians were billing for biotech medications using CPT, HCPCS, and NDC codes.

To turn variously coded claims into apples-to-apples comparisons, the team consulted with our Health Services Research department to design an evaluation approach. Several methods were tried (including the Uniform System of Classification [USC] and the Generic Product Identifier [GPI]), some of which proved impractical. At one point, we searched the data for common drug names to link and consolidate ambulatory and medical claims data and to quantify expenses.

To simplify data capture and usage, BCBST utilized a clinical data mart, MCSource, a product of ViPS. This data mart provides both medical and pharmacy data on one platform, and is regularly refreshed. BCBST is assured clean validated data with referential integrity and the ability to make meaningful and tailored queries. This particular data mart provides such information as therapeutic class, dosage form, and route of administration — information typically absent from pharmacy claims yet vital to making price-per-unit comparisons.

Data-extraction specifics included:

• Ambulatory claims: line of business (commercial or TennCare), product name, GPI, total expenses allowed and paid, and the number of patients to whom prescriptions were dispensed.

• Medical claims: line of business, CPT/HCPCS code, product description, total expenses allowed and paid, and the number of patients to whom drugs were dispensed and the cost of their visits.

WHO’S PAID AND HOW

Before we could perform an analysis of impact and potential savings analysis, we needed to understand the various reimbursement structures and arrangements for various lines of businesses, such as commercial and TennCare. We stratified the data from various lines of business and maintained distinct data streams, consolidating the data from multiple lines to perform impact analyses.

It was important to identify home-grown CPT/HCPCS codes and to consider the effect of “miscellaneous” J-codes, such as J3490, on expenditures. HIPAA will eventually lead to the demise of home-grown codes, but historically, these remain an issue. Errors are inherent in HCPCS codes, because the package size covered by the code does not always reflect the dosage prescribed. As for the nonspecific codes, this designation masks the cost of specialty drugs. Our research showed that a substantial portion of specialty drug claims filed through the medical benefit were coded J3490 or another miscellaneous code.

MAKING A PRESENTATION

With a clear picture of expenditures for specialty drugs, the evaluation team presented its findings to BCBST’s executive committee, explaining where the company’s money went in 2001. More than $10 million was spent each on chemotherapy drugs, chemotherapy adjunctive agents (epoetin alfa, i.e., Epogen and Procrit), and immunizations. Additionally, more than $1 million was paid each for hepatitis C drugs and growth hormones. PMPM costs varied widely, based on patient populations. Because certain drugs have multiple uses, we had to explain, for example, that infliximab (Remicade) — which BCBST classifies as an antiarthritic but also is prescribed as treatment for patients with Crohn’s disease —has high utilization among rheum-atologists and gastroenterologists.

Next, the team outlined possible interventions: redesigning benefits, redesigning payment structures for medical and pharmacy claims, tightening utilization management, and establishing a specialty pharmacy network. The team provided lists of interventions and therapeutic categories that might be targeted for cost control and asked the executive committee for feedback. The executive committee gave its blessing to specific therapeutic classes (see Table) but excluded immunizations and allergy injections.

TABLE.

Targeted therapeutic classes

This list is a moving target. A list of drugs that use multiple codes always will be in a state of revision.

Blood – Oncology, renal, AIDS Arthritis – Includes methotrexate Intravenous immunoglobulin – Immunodeficiency Respiratory syncytial virus – Palivizumab (Synagis) Deep vein thrombosis – Low molecular weight heparin Hepatitis C Multiple sclerosis Hemophilia Gaucher’s disease Growth hormones

The executive committee directed the team to implement a specialty pharmacy network. It chose this option because specialty pharmacy providers are specially prepared to deal with biotech drugs, offer a deeper AWP discount than do other providers, and furnish members with such services as adherence and persistence management, disease management, and coordination with home-health nursing.

When establishing a new program, it is necessary to learn the personality of one’s own organization — system configuration, potential provider networks, underwriting particulars, customer-service details, and corporate initiatives — to avoid violating any corporate operating principles, stated or implied.

Seeking advice from the marketing department also is vital. Anticipating the potential effects of your SPP on members (choice restriction) and providers (decreased revenue from reselling biotech products) can help you avoid land mines.

Gaining insight about the local healthcare market ultimately fosters acceptance and compliance. Understanding the degree of local managed care penetration influences the degree to which members, providers, and employers will accept any new system.

Specialty pharmacies want to satisfy clients and will implement your program any way you want —if you specify details. Staying current with developments in Medicare and Medicaid, knowing your state’s any-willing-provider laws, and keeping abreast of local and federal court decisions will help you establish boundaries for your program.

IMPLEMENTATION

With an understanding of the costs of specialty drugs, the mechanisms that drive those costs, and the mindsets of the players, the question for the team became: How can savings best be accomplished?

Although biotech pharmaceutical benefits do not fit neatly into either the traditional pharmacy or medical-claims molds, providing these products as pharmacy benefits and processing them through the pharmacy claim system takes advantage of NDC coding and allows exact tracking of costs for specific biotech regimens. Delineating drugs as either a medical benefit or an ambulatory pharmacy benefit is time-consuming; eight months after the program went live on Jan. 1, 2004, BCBST still was working toward accomplishing it. Last year, 71 percent of biotech injectables prescribed for BCBST members were processed through the medical benefit.

To determine potential cost savings, the team estimated future costs by applying a percentage discount to all current medical-benefit drug costs subsequently filed as pharmacy-benefit claims, thus incorporating expected member co-payments. To make the calculation meaningful, they assigned current medical-benefit claims the rates paid to network providers and assigned current pharmacy claims the AWP rate minus the discount.

While medical-benefit coverage generally is determined by site of service, pharmacy-benefit coverage typically is based on a drug’s formulary status. Part of the rationale for developing a specialty pharmacy provider network is that although various types of medical and utilization-management techniques are employed for medications, determining whether any drug is appropriate for the treatment of a specific condition necessitates specific drug data.

Prior authorization may be needed for some drugs, while retrospective review is appropriate for others. Appropriate coverage policy depends on establishing clinical guidelines for all specialty pharmacies and using them to accomplish medical management on a drug-specific basis.

To make it easier for members, providers, clients, vendors, and others to understand our system, BCBST has placed all its policies concerning medications and clinical criteria on its Web site in the form of algorithms.

The optimum cost-control solution for BCBST was to implement a specialty pharmacy vendor network, which necessitated vendor evaluation and selection. The team researched vendors on the Internet, made market inquiries of other organizations with similar programs, and issued questionnaires to vendors. Asking potential vendors a set of standardized questions yielded useful information.

The team developed a form (Figure 3) to summarize and collate this information, and then asked multi-disciplinary BCBST teams to score potential vendors in multiple categories. These categories fell under three primary areas:

• Pricing, rebates, reporting, and implementation.

• Customer service, claims, eligibility, HIPAA transactions.

• Corporate stability, patient education, product-administration process, contracting, HIPAA privacy.

FIGURE 3.

Vendor evaluation form

ACTUAL FORM HAS ROOM FOR SIX VENDORS

Using the scoring recommendations, the team visited finalists before selecting three vendors. Having a single specialty pharmacy vendor would have simplified the process, but it also would have eliminated competition, which tends to reduce costs. Further, sources for biotech drugs are limited, as manufacturers often limit distribution venues.

CONCLUSION

The foundation is in place to begin management of this component of healthcare. The infrastructure is built. A small percentage of members and practitioners have begun to utilize the preferred network.

This represents only the beginning of a long-term process that involves balancing numerous additional factors. Our focus for the next phase of this program will be on benefit redesign, provider reimbursement, medical management processes, and marketing the program to practitioners and members.