Bridging The Cap

Drug Store News, August 24, 1998 by James Frederick

What more can retail pharmacy do to prove its value to managed care payers? A long, hard climb for an elusive goal. That's the consensus view of chain pharmacy managers when asked to chart the overall progress of negotiations with managed care payers. Ditto for their efforts to win recognition and financial support from managed care payers and prescription plan sponsors for anything much beyond the simple dispensing of medications and basic counseling at the pharmacy counter.

The chain pharmacy industry has worked hard to craft a new role for community pharmacy as a vital and valued partner in managed care and integrated patient health systems. Chains have spent hundreds of millions of dollars on cutting-edge information systems, automated dispensing equipment and other time-saving tools to free their pharmacists to shift into a heavier patient-care practice. They have funded clinical disease-state training programs, partnered with pharmacy educators and bought diagnostic computer aids to support pharmacist interventions on behalf of patients. And, pharmacy chains are marketing those growing capabilities aggressively to payers and prescription benefits managers, both through their pharmacy departments and through their own PBMs. Yet despite dozens of collaborative pilot projects now underway among the nation's pharmacy chains--projects in which specially trained pharmacists are counseling and monitoring patients with asthma, diabetes, hypertension and other diseases to help them live healthier lives--most managed care programs and the plan sponsors that pay for their services remain unwilling to spend extra for those efforts. At most, some plans are beginning to compensate a handful of chains for specific cost-saving initiatives in therapeutic substitution, generic switching and/or limited pharmacist intervention efforts. A classic catch-22 "I think [disease-state management efforts] are floundering," asserted Mike Bettiga, senior vice president of health care services for ShopKo Stores. "And, the reason is we all believe it's the right thing to do, but until we get a means to receive reimbursement, it's hard for us to put forth the dollars to get everybody trained and to develop the patient care centers." Moving beyond the current morass in third party reimbursements and contract negotiations is essential if retail pharmacy is to thrive in the healthcare system of the 21st century, industry leaders agree. But, too often, pharmacists and payers are still locked in a contentious tug-of-war over average wholesale price-based dispensing fees, with payers focused almost exclusively on the product cost of drug benefits for their health plan members and retail pharmacy operators waging a frustrating and often futile battle to convince managed care decision makers that pharmacists can offer far more value as patient-care specialists. That value can extend to improved patient compliance, more successful treatment outcomes and lower overall medical costs, industry leaders argue, despite the rising cost of prescription benefits. "The actual dispensing side of pharmacy understands the possibilities that exist, and the value that we can add to the overall health care of that patient," said Catherine Polley, director of pharmacy, health services and third party for Kmart Corp. "But, we've not done a good job yet of providing the data back that proves that point." Nevertheless, said Polley, "I think if we all keep moving in that direction, we will eventually gather the data that will prove our worth and show that these services really are of value in the overall savings to the patients' health care. "I know a lot of the manufacturers are starting to work on the managed care side a lot more than they have in the past," she continued. "We're starting to hear from our vendors that they're trying to get into the loop now, too, which may help the whole initiative move forward. But, it's not moving fast," Polley said. Added Bill Titelman, executive vice president of managed care and government affairs for Rite Aid, "We need to be out there educating people about what we can do [to enhance] quality of life, quality of care and cost containment." Most of the health plan sponsors paying the bills, however, have yet to be convinced. Despite the fact that an estimated 86 percent of Americans are now covered by managed health care, the majority of benefits managers still approach pharmacy and prescription drug therapy as a burdensome cost rather than as part of an integrated and cost-effective part of total patient care. "They're not going to provide reimbursement until you can document that you provide value," agreed Richard Gourley, dean of the pharmacy school at the University of Tennessee-Memphis. The result is a classic catch-22. "We're still very much in the chicken-and-egg stage right now," said Doug Stephens, vice president of network administration for Eli Lilly-owned PCS, one of the nation's biggest prescription benefits managers. "The client doesn't want to pay for [pharmacist intervention] programs without proof that they can save costs, and the pharmacists don't want to take on the costs and go through the effort involved in providing those services without some guarantee of payment. Too often, the drug benefit is seen only as a cost." Agreed Dale Adkins, vice president of pharmacy operations for Eckerd Corp., "I still think we're at that 'prove it, and we'll come' stage with managed care payers. The issue appears to be that there are different entities at those companies, and they don't communicate much with one another. The person responsible for the pharmacy drug benefit is focused only on cutting costs and staying within a budget. The retailers are still trying to crack that nut." ShopKo's Bettiga agreed that most payers remain locked into old ways of approaching the prescription benefit for their members, where the pharmacy benefits manager is constrained by budget pressures and isolated from a larger, companywide perspective on patient care and overall health spending. "Payers should be looking across all their business segments to see how [prescription drug therapy and pharmacy-care services] impact the overall medical costs," he told Drug Store News. "That's what I would stress, that they look laterally across to see what these costs are really attributed to, from a positive perspective, instead of just looking at this drug-cost piece as the end-all." Even the most powerful chain pharmacy providers remain stymied by the current impasse over reimbursements. Said Jim Martin, senior vice president of pharmacy for Wal-Mart Stores, "There is not yet a big understanding in even close to half of the third parties of the value we can bring to the table. Some may understand that, but they may feel like the value we bring is what we should have brought to start with." Martin added, "There have been inroads with some [PBMs and other payers]. But, some still are only worried about the total payout." Rising script prices scramble the debate While the debate has gone on, managed care has become the most important source of drug reimbursement, according to Frost & Sullivan, a healthcare marketing consulting firm. Managed care payers accounted for $24.8 billion of the $48.1 billion reimbursed in 1997, the firm's researchers said. Scrambling the picture is the fact that pharmacy benefits are fast becoming a significantly bigger slice of the overall healthcare budget for most payers, thanks to rising utilization rates, new uses for older drugs and--most noticeably--steeply rising prices for new breakthrough medicines and even many generics. (See related story on page CP31.) "The price of the new medicines ... and even many of the generics ... has changed dramatically, and those are ratcheting up those costs, as well," said Bettiga. "If pharmaceuticals as a percent of that total healthcare dollar continue to escalate, payers are going to look at short-term measures to try to reduce that. And, the easiest to control are the reimbursement rates they're paying pharmacists. So ... there's going to be continual pressure on us through the PBMs and the benefit plans to reduce our reimbursement rates to try to offset the increase in drug prices or increase in utilization rates. "The big concern I have is whether or not the payers are looking out long-term," he added. "Are they willing to take the risk and look out three to five years to see if these impacts are positive from an outcomes standpoint? Or, are they going to take the shortsighted approach and say, 'I've got to control my investment, my dollars, and therefore I'm going to put cost-cutting measures in that are going to do nothing at this point other than decrease the profitability again of the retailers?' And, we don't have anything left to cut." Thus, even though HMOs and PBMs are paying 15 or even 20 percent more for their members' drug benefits this year, that rise in costs doesn't translate to added profitability for the pharmacies dispensing their prescriptions. Instead, say many chain pharmacy leaders, the higher drug benefit costs are putting even more pressure on third party pharmacy benefits managers to hold down costs. That, in turn, translates to new assaults on the razor-thin profit margins retail pharmacy squeezes from third party prescription business when contracts come up for renewal. "I'll tell you that especially this year, with the new drugs coming out and the higher-priced drugs, it's a huge impact to [third party payers], as well as to us," said Wal-Mart's Martin. "Most everybody [at retail] saw a little bit of relief last year-not where [margins] were going up, but at least they weren't falling as fast. A lot of things have changed since the first of the year with these new drugs. We've seen some [payers] go through and just slash their [maximum allowable cost for drugs] to the point where it's just brutal." The pressure has, in some cases, intensified the tug-of-war over drug reimbursements based on average wholesale price minus a percentage, even as recognition among payers of cost-saving value pharmacists can bring to patients' drug therapy slowly expands. And, there are some signs that the growing leverage of the industry's biggest drug chains is adding some muscle to the industry when prescription provider contracts come up for renewal. Over the past year, CVS, Rite Aid, Genovese Drug Stores and Walgreens have toughened their negotiating stance with some payers, drawing lines in the sand and walking away from plans in New York, Ohio and California that are clearly unprofitable. "Third party prescriptions have put tremendous pressure on prescription margins, and made it much harder to make money in the prescription area than it's ever been," said Walgreen Co. president and chief executive L. Daniel Jorndt earlier this year. "We're talking to the managed care people and we're saying, 'Look, we're looking for a reasonable reimbursement rate. We're not looking to get rich, but we don't want to be dispensing prescriptions below our cost of doing it. That's not good business.' "So, we negotiate with these folks ... and we're being successful," Jorndt said. "Eighty percent of the third party plans we're negotiating with are giving us a little more. "Another initiative is as we're encouraging them to pay us a little more, we're saying, 'Look, will you [also] commit to paying us a little more next year, now, so we get a good relationship going?' Here again, we're having success," Jorndt added. "So, I'm not bullishly optimistic on this; this is going to continue to be a tough, tough problem. But, we are addressing it. We've got a lot of people with a lot of pharmacy experience in the company, and I think we're starting to turn the tide." Walgreens in June walked away from a reimbursement plan offered for California members of the Pacificare/Secure Horizons health plan, while leaving the door open for Pacificare to return to the table with a higher reimbursement offer. "We simply can't afford to fill prescriptions where we're not making a reasonable amount of profit," said Walgreens spokesman Michael Polzin. "If they come back to us with a better proposal, we'll be happy to consider it." Signs of progress Despite the glacial pace of progress on the reimbursement front, there are also plenty of hopeful indicators this year that point to a gradual thaw in retail pharmacy's effort to win recognition and payment for value-added patient-care services. One big one: approval this year by the Health Care Financing Administration of payments for disease management by pharmacists in Mississippi. HCFA approved a Medicaid waiver to reimburse credentialed pharmacists for patient-care efforts in four chronic disease states, including diabetes and asthma. The move could help establish retail pharmacy's cost-saving value to payers, promote a set of standard protocols for delivery of patient care and help integrate pharmacists in the state more closely with wider healthcare networks. Drug chains, meanwhile, continue a slew of efforts to document the value of pharmacist interventions. Most of the leading chains, including Eckerd, Rite Aid, Longs, CVS, Kmart, Kroger and Wal-Mart, have linked closely with pharmacy schools to prepare their pharmacists for larger clinical-care roles in disease states, such as diabetes, asthma and hypertension; a few, including Eckerd with its Pharmacy of the Future and Kmart with its Kmart Kare Center, are also piloting full-blown patient-care centers with sit-down diagnostic and lifestyle evaluation programs at a few test pharmacies. A few chains, such as Medicine Shoppe, USA Drug/Super D, Snyder Drug and Longs, are also well along with pilot programs in disease-state management that involve information sharing and coordinated patient care with local HMOs. "We're starting to work with one of the HMOs [in the Minneapolis/St. Paul market], to see if they would have some interest in our taking on a group of patients they find high-cost and high-risk, and see how we might [provide] some disease management by our pharmacists, probably on a capitated, risk-sharing basis," said Snyder Drug president and chief operating officer Mike Pan. "We think we can get as much out of it as they can because we need to get that [health outcomes and cost-of-care] information. That's what's going to sell this in the future. "Most HMOs, even small companies that are self-insured, say, 'Show me,"' Pan continued. "You can give them all the written statistical data you've got, but they want to see it, touch it, feel it and see what really happens. If you can go to them and say, 'We were over here at this company, and we actually saved them 20 percent of their healthcare dollars' ... we can bring that to other companies. "The problem [for payers] is that they've got to spend about 10 percent more [in drug therapy] to save maybe 40 percent in total costs," he added. "But, we think we can keep [patients] out of the hospital and emergency rooms particularly in states such as diabetes and asthma where compliance is so important. Sometimes that's as simple as having somebody nagging you to take your medication. "That's why we have our pharmacists deliver the actual script to the customer [at the counter]. We want them to talk to the customer. And, we have some stores that do it exceptionally well," said Pan.