Some specialists depend on the markup on injectables. To contain costs, health plans move control of biologic distribution from physicians to specialty pharmacies. Welcome back to the plan-provider turf wars of the ’90s.
Abstract
Some physicians would rather not have to buy and stock biotech drugs. Health plans are seeking ways to control the cost and distribution of injectables. Specialty pharmacy would seem to be the answer, right? Well... maybe. Removing biotech drugs from physician control carries some measure of risk for health plans – a risk that evokes memories of the payer-provider turf wars of the 1990s.
If emerging biopharmaceuticals turn out to be the wonder drugs they are touted as, the savings in lives and overall healthcare expenditures may make their high cost worthwhile.
Although health plans generally appear willing to make that investment, they are struggling to manage what may be the fastest growing — and most inflation-prone — part of their business: specialty drugs.
“This is probably the hottest topic among managed care pharmacists,” says Paul Beckman, vice president for healthcare management in the southern Ohio region of Anthem, the Blue Cross and Blue Shield licensee in nine states.
“We recognized about a year ago that our expenditures in this category, specialty drugs, was rising by a minimum of 30 percent” annually in each state in which Anthem operates, Beckman says. “There’s no other area growing at a faster rate.”
In fact, says Henry DePhillips, MD, executive vice president and chief medical officer of MEDecision, a medical management software developer in Wayne, Pa., some employer-sponsored health insurance pools will see pharmacy expenses exceed the cost of inpatient care for the first time — thanks in no small part to the cost of biotech drugs.
“This issue has been on the radar screen for about three to four years,” a period that DePhillips says coincides with the growth in physician-owned outpatient infusion centers.
One strategy for managing the cost of biotech therapies is to use an intermediary, such as a specialty pharmacy, to control the delivery chain. While some physicians would welcome this, the practice risks inflaming some smoldering embers among specialists who are already feeling burned by relatively low compensation — and who resell biotech therapies at a profit to make up for lost practice income.
A CHANGING GAME
More than 90 percent of available biotech drugs are injected or infused, according to Peter Smith, CEO of Pittsburgh-based Medmark Specialty Pharmacy, a subsidiary of Highmark Blue Cross Blue Shield in western Pennsylvania.
Because most biotech therapies are administered by healthcare professionals or distributed through home health agencies, major payers, including Medicare, usually consider these drugs medical, not pharmacy, expenses. “Most biotech drugs are not available in retail pharmacies,” DePhillips explains.
Setting reimbursement levels for biotech drugs often is akin to an educated guess.
“Because this is a fairly new phenomenon, we have situations where a drug may be covered under the medical benefit or the pharmacy benefit,” based on the previously negotiated contracts with providers, Beckman says. “We ought to be paying the same regardless of the setting in which the drug is delivered.”
Most health plans pay for injectable therapies according to the J-codes of the Healthcare Common Procedure Coding System that is maintained by the Centers for Medicare and Medicaid Services, rather than the National Drug Codes favored in the pharmacy business. “Insurance companies don’t have a way to capture the NDC for this class of drugs,” Beckman explains.
But the growing popularity of outpatient infusion therapies may be rendering old ways of doing business obsolete, because the HCPCS and Current Procedural Terminology coding scheme were designed to capture procedures — not pharmaceuticals.
“What happened is that the tail and the dog have switched places,” says Mark G. Fuller, MD, executive director of the Biotech Medical Management Association (BMMA), an educational group for managed care medical and pharmacy directors.
Some specialists, particularly oncologists, have resisted payers’ efforts to control the distribution of injectables through use of specialty pharmacies, says Henry DePhillips, MD, executive vice president and chief medical officer of MEDecision. “Specialty drugs are actually a revenue center for oncologists, and managed care insurers have sort of caved in to the pushback.”
PHOTOGRAPH BY DON TRACY
Health insurers and pharmacy benefit managers increasingly are relying on specialty pharmacies to help determine whether expensive new treatments are both clinically and financially prudent. For just this purpose, Highmark created Medmark last August, following its acquisition of Fishers Specialty Pharmacy Services.
Biotech therapies are like nothing P&T committees traditionally have had to deal with, due to their complexity and because so many dollars are at stake. Biotech drugs are “unusual and potentially extremely beneficial things, but at a very high cost,” says Fuller. “If you make a wrong coverage decision on an inexpensive pill, the ramifications are not that big. You don’t want to cover the wrong thing, but you don’t want to miss covering effective new therapies either.”
SHIP TO, BILL TO
In addition to assisting with coverage decisions, specialty pharmacy operations also focus on the unique handling requirements of biologics.
Bioengineered drugs tend to have a shorter shelf life than traditional injectables, so their distributors are adopting the “just-in-time” delivery model that has helped manufacturing industries cut warehousing expenses.
Many specialty pharmacies prefer to ship the biotech drugs to providers only as needed and bill the insurer directly. Medical practices do not have to worry about doses losing potency or spoiling, nor do they have to put up any cash and wait for reimbursement.
“The more innovative companies are using a ship-to, bill-to program,” according to DePhillips.
“We are very focused on next-day or same-day delivery,” says Medmark’s Smith, noting that 80 percent of Highmark patients are within a one-day delivery area. “If we’re following our model, [physicians] don’t own that inventory.”
Family physicians do make use of biotech drugs to treat multiple sclerosis, rheumatoid arthritis, pain, dementia, and anemia. Yet many primary care physicians have gotten out of infusion therapy in recent years, because of declining reimbursements.
“We are at the mercy of whatever the insurance company wants to pay us,” says David Levey, MD, medical director of Montefiore Medical Group, a primary care affiliate of Montefiore Medical Center and Albert Einstein College of Medicine, Bronx, N.Y.
Beckman says that the specialty pharmacies also supply biotech drugs to rheumatologists, allergists, and pulmonologists, while gastroenterologists increasingly are finding off-label uses for the therapies.
“Our expectation is that in the coming years, more and more specialties will be looking at biotech drugs,” Beckman says.
UNHAPPY ONCOLOGISTS
Delivering the product directly to physicians for immediate use in patients sounds like a positive formula for all parties, except for one basic fact: a substantial proportion of biotech drugs are oncology drugs. Oncologists long have profited from buying injectable pharmaceuticals in bulk, and then charging patients a hefty markup for administering each dose.
For this reason, says DePhillips, a family physician, primary care practices are more inclined to opt for the ship-to, bill-to program than are specialists. For some specialists, it is a sensitive issue.
“We have some pushback from the oncology community,” he says. “Specialty drugs are actually a revenue center for oncologists, and managed care insurers have sort of caved in to the pushback thus far.”
Health plans must be fair to physicians by replacing the lost income from marking up drugs with higher payments for medication administration.
For some MCOs, all it would take to create a major headache for purchasers and members would be for a single large oncology group to leave its provider network in a lather over losing control of biotech therapies.
This touches on one of the more controversial topics in healthcare.
“Traditionally, oncologists have been underpaid for the services they provide,” Fuller notes. Rather than boosting reimbursements for the actual service, he says, many payers have allowed physicians to recoup their costs through marking up the price of the drugs.
Numerous oncology and hematology interests contacted for this story — including small and large group practices, the American Society of Clinical Oncology, the American Society of Hematology, and the nation’s largest cancer center operator, U.S. Oncology — either did not return phone calls or refused to comment.
The cancer-treatment community remains a focus of investigations by the U.S. Department of Justice and by Congress into the pricing and reimbursement of physician-administered drugs.
In 2001, TAP Pharmaceutical Products paid a record $875 million in fines and penalties for conspiring with physicians to overbill Medicare and Medicaid government healthcare programs for leuprolide (Lupron), a treatment for prostate cancer. Several urologists have pleaded guilty to fraud in the case.
Last year, AstraZeneca Pharmaceuticals paid $355 million in criminal penalties and civil settlements of federal fraud charges related to the sampling of its own prostate cancer drug, goserelin (Zoladex).
At the heart of these two high-profile cases is the much-maligned and oft-abused average wholesale price (AWP) reimbursement system for drugs provided in physician offices.
“AWP has become very controversial. With all the complex contracting strategies, it’s hard to know exactly what it means any more,” Fuller says.
But the situation is about to change, at least in the short term.
In 2005, CMS will base Medicare Part B payments to physicians on the average sales price (ASP), reimbursing for most pharmaceuticals at 106 percent of the market average, as reported by drug manufacturers.
As required by the 2003 Medicare Prescription Drug Improvement and Modernization Act, CMS will study whether high-volume purchasers, such as health plans and pharmacy benefit managers, should be excluded from ASP calculation and whether oncologists and hematologists really can buy drugs for 106 percent of the official ASP.
As of 2006, physicians will be able to choose whether they prefer reimbursement based on ASP or if they would rather have drugs supplied by a CMS-approved contractor, which would file claims and collect copayments from patients. Just like the specialty pharmacy model with biotech drugs, the physicians would stay out of drug distribution and lose the potential for markup.
If there is anything close to a consensus on this issue, it’s the realization that health plans must be fair to physicians by replacing the lost income that was gained from marking up drugs with higher payments for medication administration.
“We ought to be paying them fairly for their professional services, and they should be less reliant on the markup,” Beckman says.
“If you take away the profit on the buy side, you have to replace it with something else,” agrees Smith. “It’s just logical that if you push down one side, the other is going to pop up.”
PERFORMANCE BONUSES
Payers are struggling to come up with the right balance between drug cost and administration cost.
Highmark, like many other health insurers, is taking a close look at rewarding physicians for practicing evidence-based medicine. “Evidence-based guidelines are the wave of the future,” Smith says.
Highmark is negotiating bonus payments to medical specialists who follow protocols. With a goal of implementing the program by year end, Highmark has opened its three-phase discussions with pediatricians, orthopedists, and other physicians who do not make much money off of J-code therapies.
“The whole distribution process is very difficult,” says Mark Fuller, MD, executive director of the Biotech Medical Management Association. With biologic drugs, he says, “There is a new group of people introduced into the process.”
The second round of talks will include rheumatologists, neurologists, and others who do derive some profit from injection and infusion therapies. “They make enough to keep it interesting, but not so much that you can’t negotiate,” Smith says.
Only after coming to agreements with the first two groups of specialists will Highmark attempt to institute evidence-based guidelines for oncologists.
Similarly, Anthem has a team of physicians, pharmacists, and business analysts to focus on specialty pharmaceuticals, but is treading lightly with oncologists.
“We’ve not yet addressed the chemotherapy issue,” Beckman says. Instead, Anthem is looking at biotech drugs as adjunct therapies for cancer patients, such as the treatment of anemia brought on by chemotherapy.
Anthem has an advisory board of independent physicians within its various provider networks who meet at least monthly to discuss issues related to new therapies. The company also has a standing committee of medical directors on the company payroll, though the committee does not currently include any oncologists, Beckman says.
Beckman says that Anthem has had some success paying physicians for following protocols in disease management programs for patients with congestive heart failure and diabetes, but there are no such benchmarks for biotech therapies. “Once the accepted standards are out there, we could see ourselves rewarding providers for following protocols,” he says.
Fuller, of the BMMA, foresees a problem if payers can’t find ways to keep physicians happy: Private practices may refer cases to hospitals if they are losing money on infusion therapies.
“It’s bad for the patient and the payer, and it pulls resources from the hospital,” he says.
“The heavy lifting is in the cognitive work of deciding which patient should get what treatment for his or her illness,” Fuller says. “We don’t think we have the solution either. The jury is still out on this.
“This is a tricky issue, but it needs to be resolved, so that patients, physicians, and payers know what to expect.”