Health plans and manufacturers are scrambling toward the last great untapped market: Medicare. Getting there has been, well, half the fun.
Abstract
Health plans designing pharmacy-benefit packages for Medicare beneficiaries found themselves in uncharted territory, especially with biologics. Along the way, though, many plans had common experiences. The lessons from those experiences can make or break a plan’s participation.
Like high school seniors cramming for the ACT exam, many of America’s health plans are preparing for their biggest test in recent memory. At stake is their shot at a significant new revenue stream, when more than 43 million Medicare beneficiaries become eligible for prescription drug coverage on Jan. 1.
Medicare Part D plans, heavily subsidized by the government, give health insurers an opportunity they may never have again.
“This is the last untapped market in the United States, so they want to be in the game,” says Randy Vogenberg, RPh, PhD, senior vice president and national practice council leader with Aon Consulting’s Life Sciences Consulting Practice.
In the first year alone, the new benefit plans may funnel up to $250 million in profits to nine major health insurers, according to investment banking house Goldman Sachs — explaining why the health plan industry is pulling the equivalent of a yearlong all-nighter.
Of course, the first time you do anything, there’s always a learning curve. So, what have health insurers learned so far? A few health plan executives and consultants took a break from the books, poured another cup of coffee, and assessed the lessons learned for Biotechnology Healthcare.
Every health plan has much to do in terms of building the infrastructure to handle these new participants and this new benefit, says Joe Altman, vice president of Medicare Part D business development for United-Health Group’s Ovations unit.
PHOTOGRAPH BY PETER HVIZDAK
Lesson 1: This is hard
“I’d say one of the biggest lessons we’ve learned is that there’s a lot to be done,” says Joe Altman, vice president of Medicare Part D business development for UnitedHealth Group’s Ovations unit. “Every plan participating in Part D obviously had a lot to do in terms of building the infrastructure to handle these new participants and this benefit.”
That’s true whether the plan is going for huge growth, courtesy of Part D, or just trying to hold its position. AvMed Health Plan is offering a single product — a drug plan in conjunction with its Medicare Advantage plan in two Florida counties where AvMed has about 19,000 Medicare Advantage members.
“I think it’s overwhelming in some aspects,” says Tim Sawyers, RPh, MBA, AvMed’s director of clinical pharmacy management. “It has been a companywide commitment, in our case, to be able to take these volumes of [regulatory] requirements and spread out the responsibility over a number of people.”
AvMed’s main goal is to protect its Medicare Advantage market share. So Sawyers endures the complexity of guidance documents produced by the Centers for Medicare and Medicaid Services and the amount of manpower required to disseminate significant information.
For many players, Part D means adding staff. UnitedHealth, which will offer a standalone Part D package as well as several other drug plans to its Medicare Advantage members, is hiring more than 1,000 workers. Humana is hiring 1,110 in Louisville to handle its national roll-out of Part D offerings and, simultaneously, to expand its Medicare Advantage program to 46 states.
Lesson 2: Educate first, sell later
While the government has been trying to get the word out about the new drug benefit, health plans pulled out all stops this past summer to soften up their new market.
“There’s a gigantic communications process that has to happen, and you can never underplay how important that is,” says David Osterndorf, senior health care analyst at Towers Perrin.
Humana dispatched a fleet of RVs to nearly 500 senior centers and Wal-Mart stores around the country in an effort to promote the benefits of Part D. UnitedHealth printed millions of copies of the “Show Me Guide,” a Part D primer, and put them in retail stores where the elderly like to shop.
Altman took a lesson from the low participation in the federal prescription drug discount card program: “It’s important to make sure that all beneficiaries, the people who stand to benefit from this historic change in Medicare, understand the basics of the plan.”
Osterndorf says the health plans’ educational efforts may prove pivotal in their ability to succeed with the Part D debut.
“The plans that do that the most effectively, that start to be trusted in terms of getting the message out to the retiree population, are the ones that are going to win,” he says. “Those who appear to be just trying to hawk a new product without letting people understand it are the ones that are really going to suffer.”
Lesson 3: Don’t go it alone
Everybody is worried about the details of Part D — the formularies, the risk pools that will accumulate, the utilization rates — but the first thing they’re worried about is getting beneficiaries to sign up. That’s why UnitedHealth is spending $75 million to ramp up for Part D, and Humana is spending $80 million. Aetna plans to spend $50 million, and Cigna will spend $40 million.
In addition to the new hires and marketing money being poured into the Part D premiere, the big players are bringing dates to the affair. United paired with America’s most high-profile membership organization for older Americans, AARP, and branded its standalone Part D product with AARP’s name. Aetna announced strategic alliances with Rite Aid and CVS, while Cigna linked arms with Nation’s Health. Meanwhile, Humana is touting a preferred pharmacy network for Part D that includes all Wal-Mart and Sam’s Club locations, along with every Rite Aid, CVS, and Brooks Eckerd pharmacy.
Even though some health care executives call 2006 a “throwaway year,” saying Part D’s financial success won’t be evaluated until 2007 or later, this is marketing’s moment.
“There is certainly a market-share grab here,” says Towers Perrin’s Osterndorf. “The organizations that get the largest market share are going to have an advantage.”
For one thing, there will be a competitive advantage in having lots of Part D participants, which allows a plan to spread administrative expenses over many beneficiaries. For another, winning a Part D participant in the first year of the program may well mean having that participant for life.
“People in their senior years don’t change unless they have to for some reason,” Osterndorf says.
Lesson 4: Keep it simple
The basic Medicare Part D benefit — with a deductible, copayments, coinsurance, and a so-called doughnut hole of no coverage before catastrophic coverage kicks in — will strike many beneficiaries as “bizarre,” says Shoshanna Sofaer, DrPH, professor of health care policy at Baruch College, City University of New York. Earlier this year, she counseled Humana marketing executives to give beneficiaries a simple message — but to not confuse simplification with vagueness.
“When people are anxious —which people will be over this decision — giving them something vague that could be interpreted many ways will increase their anxiety,” she says. “To make it simple, you really need to make it concrete.”
At UnitedHealth’s Ovations unit, that kind of thinking was reflected in benefit design.
“As we talked about it more and more, we decided the priority was to make it simple for the consumer and easy to understand,” Altman says. “We’ve offered a more retiree-friendly version of the standard Medicare Part D benefit.”
For example, Ovations eliminated the deductible and co-insurance for its standalone drug plan, opting for copayments that correspond to different tiers of drugs.
“You’d better be good at predicting what your costs are going to be, because we will start seeing ‘bracket creep’ for high-tech drugs.”
— Tim Sawyers, RPh, MBA
Lesson 5: Look for ways to make life easier
Rather than run two parallel operations — one for commercial business and one for CMS-regulated Part D programs — some payers are tweaking their commercial-side processes.
At Aetna, for example, its drug formulary historically was established through a two-step protocol: A pharmacy quality-advisory committee, consisting of several external doctors, received drug-class reviews and made recommendations to the pharmacy and therapeutics committee. The P&T committee, comprising medical directors and pharmacy directors from Aetna’s various regions, made the formulary decisions.
For Part D plans, CMS instructed plans to use a P&T committee with a specific number of outside physicians, including a geriatrician. So Aetna created a single formulary committee — with decision-making responsibility for both commercial and Part D offerings —that meets the CMS guideline.
Yes, the move satisfied CMS, says Aetna pharmacy director Jeff Taylor. But it had another beneficial effect: “It also helped improve how we handle our commercial business.”
Lesson 6: Don’t borrow trouble
The full force of the emergence of biologics will not be felt by health plans — or the federal government — for a few more years.
“We’re at the tip of the iceberg right now, and we expect that probably between 2007 and 2010 you’ll really see an impact,” says Vogenberg, who tracks the implications of biologics for Aon. “Certainly, 2010 will be a watershed year, looking at the pipeline.”
He expects to see changes to Part D offerings after 2006, and that’s when health plans may focus on creating a benefit design that addresses the potential value — as well as the high cost — of biotechnology products.
Lesson 7: Sharpen the pencils
Because the drug benefit is new, guesswork and speculation have teamed with actuarial science and marketers’ nerves to come up with 2006 Part D offerings, but 2007 offers insurers a chance to do things their normal way.
“Once we have utilization data based on the different plans, we’ll be able to know which plans are popular, understand why they are popular, and understand how best to market those to the population that needs them,” Taylor, at Aetna, says.
He’s going to keep a close eye on biologics, in particular, to see how utilization patterns shake out. For example, he says, in some patients, any of three cytokine inhibitors —etanercept (Enbrel), adalimumab (Humira), and infliximab (Remicade) — could be considered equally good candidates for treating rheumatoid arthritis. Infliximab, administered by infusion in the doctor’s office, is covered under Part B; etanercept and adalimumab are self-injectables, which puts them in the Part D bucket.
“If the treatments are equivalent, then what’s the most cost-effective method — the self-injectable or the infusible?” Taylor asks. “I think, from a biotechnology standpoint, that is the biggest question that people will have.” The question is not only one of cost-effectiveness, but also of predicting utilization patterns so premiums can be set properly. Because of these biologics’ cost — and, with infliximab, the services associated with infusion — being able to forecast their use is key.
“It could have a big impact on how choices of therapy are done and what bucket those costs fall into,” Taylor says. “If everybody uses infliximab on Part B, then all your costs are going to be under Part B, and your premiums are going to be based on that. If everybody uses etanercept or adalimumab, everything is going to be over on Part D, and so then that premium is going to be affected.”
Sawyers, at AvMed, wonders how beneficiaries who will have access to new therapies for the first time will respond to new options.
“You’d better be good at predicting your costs, because we’ll start seeing what I call ‘bracket creep’ for these high-tech drugs,” he says. “You get additional indications for conditions that people might have been using oral therapy for, but now, all of a sudden, they’ve got injectable drugs available, too.”
How health plans try to manage the utilization of biologics may well depend on whether they are managing a drug plan only or a prescription plan attached to a Medicare Advantage plan.
“I look at the total cost of health care rather than the pharmacy cost,” says Sawyer, who represents a Medicare Advantage plan. “If these medications provide downstream cost savings in the form of reduced treatments of other modalities, or reduced hospitalization, then we come out ahead. If these drugs are used for indications where other more cost-effective, noninjectable drugs could be used, then we could lose money.”
Some people question whether beneficiaries will really have access to high-cost biologics. CMS regulations allow plans to limit the number of biologics in their Part D formularies, even though getting the right match between patient and product is key to biologics’ therapeutic success.
The number of people who use CMS’ appeals process to circumvent a too-narrow formulary will be one indication of whether Part D is truly helping beneficiaries.
“The theory is that the formularies should not discriminate against biologics,” says Jayson Slotnik, director of Medicare reimbursement and economic policy at the Biotechnology Industry Organization, “and I have faith in the government that that will be true.”
But not blind faith.
“We will be monitoring access issues in regard to our products,” Slotnik says.
Lesson 8: There’s always next year
Although2006 is the big year for Part D enrollment, 2007 will be the second-biggest year. That’s because employers who sponsor retiree health plans have, more than expected, opted to accept federal subsidy payments to continue providing drug coverage rather than move their participants into Part D plans.
“Along the way, there were discussions with employers that suggested that more of them would have taken alternative means under Part D,” Ovations’ Altman says.
Health plans salivate for those retirees — more than 10 million people, or roughly 25 percent of the Medicare Part D eligibles. That’s because, having had health insurance coverage throughout their working lives, these retirees are theoretically healthier than others.
Osterndorf, at Towers Perrin, thinks the development of products for the group-sponsored marketplace has been somewhat slow because vendors haven’t had the time to provide the tailored kinds of products that employers want. He expects that to change next year.
“Everybody is saying that 2007 is going to be different in terms of its offerings.”