In 2014, two big changes happen. First, community rating begins; carriers will no longer underwrite policies as they do now.  There will be little or no rate differentiation for the risk associated with your group compared to others.  In 2014, industry, sex and health conditions will have nothing to do with the specific rates charged.

1. Are all network pricing and pharmaceutical manufacturer rebate and financial benefit improvements immediately passed through to us over the contract term?

2. Is the PMPM (per member per month) administrative fee your only revenue stream?

3. How will our implementation begin?

4. Who will be on our team and will we be provided with an Executive Sponsor who can escalate issues?

5. Do you limit the percentage of time committed to servicing your clients?

6. Will you provide some key references and testimonials?

7. Are you URAC-accredited? If so, what does this mean to me, as a client?

8. Based on our claims data, what types of clinical programs do you recommend at the outset?

9. Which clinical programs and initiatives do you recommend in the short and long-term? Tell us how we can collaborate to create a long-term strategy.

The bottom line is that you must choose a PBM that validates the big picture up-front, shares your pharmacy benefit philosophy, exudes the passion and commitment required to do the job, and presents a plan for dealing with potential issues and the future.

Some simple comparison shopping shows that despite formidable bargaining clout, many employers are paying far higher prices for some drugs than ordinary individuals can get walking into retail pharmacies.  Consider the price for Ranitidine 75 mg, the generic form of the popular anti-ulcer medication Zantac.

One of my clients paid Express Scripts $36.22 for 90 pills mailed to a worker, who pays an additional $5 co-pay, bringing the total cost to $41.22, according to a re-pricing we completed.  If this same employee had simply walked into their local pharmacy and bought the same Ranitidine prescription it would’ve cost as little as $10.00 for the same 90 pills.  This is a 400% difference in cost!

That this employer pays ESI higher prices for many generic drugs than regular pharmacies charge customers without insurance illustrates the complexities, and potential pitfalls, of prescription drug coverage. It’s also a rare glimpse into how such plans work.

Traditional pharmacy benefit managers, such as ESI and CVS/Caremark, administer the drug benefits of large employers, acting as the middlemen between the employers and the pharmacies. Such PBMs create large networks of participating pharmacies and use their size to drive down prescription drug prices.

Source:  managedcaremag.com

Some, including ESI and CVS/Caremark, also own their own mail-order pharmacies, and guilt employers to move more of their workers’ prescriptions into the mail business.  Traditional PBMs promise to realize savings for their corporate customers by keeping the overall cost of prescription medications down.  But, they also preserve large profit margins for themselves, as the above prices clearly indicate.

Some companies say they are satisfied with the overall savings Medco is providing. But others simply aren’t aware of the vast price discrepancies on generic drugs.  How can a company say it is satisfied with the overall savings when they don’t even know the actual costs?

Too many companies are spending tens of thousands of dollars on products for which they were never given a price list!  These assumed savings are based upon colorful PowerPoint presentations, delivered by PBM account managers, designed to tell you exactly what you want to hear.

Because generic drugs are so cheap to begin with, PBMs and retail pharmacies alike typically make big margins on generic drugs, which account for about half of prescriptions filled in the U.S.  That’s why pharmacies have a big incentive to switch prescriptions for branded drugs to their generic versions.  Aggressively switching of branded prescriptions to generics does help reduce employers’ drug costs.

Employers also believe they are getting better prices on branded drugs through PBMs, which is why they are willing to pay bigger markups on generic medications. Mail-order pharmacies generally fill a three-month’s supply of medication at once.

Traditional PBMs, like ESI and CVS/Caremark, benefit greatly from its mail-order pricing system.  When a patient fills a prescription through the mail pharmacy, the full profit belongs to the PBM, rather than having to split it or get very little when the transaction happens at the retail store.

Some traditional PBMs derive more than half of its corporate profits just from selling generic drugs from its own mail order unit.  For example, Ranitidine 75 mg x 30 pills usually cost pharmacies about $2.  At retail, customers can pay $10.  I’ve seen mail-order prices as high as $181.00!  ESI can show its customers a great savings because the list price, called the average wholesale price, quotes Ranitidine at about $214 for 90 pills.

The complex system of drug pricing makes it difficult for employers to know whether they are getting the best prices.  Generic drug prices in mail programs are based on average wholesale price, or AWP.  AWP is considered an inflated price among those in the drug industry.  For example, the average wholesale price for Fluoxetine 20 mg x 100, the generic drug for Prozac, is $240.12 but pharmacies can pay less than $2.00!

Not all mail-order pharmacies are deceptive.  A truly transparent mail-order pharmacy, one willing to contractually accept the role of fiduciary, will deliver a significant savings for employers compared to retail.  Don’t hire a PBM because of its long history, big offices, or colorful presentations.  Hire a PBM because of the value it is contractually willing to deliver its clients.  It is really quite simple; if the PBM isn’t willing to sign on as a fiduciary then walk away.

Most have heard that the new Healthcare Reform bill was projected to cost $850 billion. Many of us have heard the revised estimate of $1.2 trillion. Not many of us can explain $1.2 trillion in layman’s terms. The government hasn’t shared specifics about the cost in any meaningful way. So for many, the “cost of healthcare reform” becomes a point of conversation without much reality connected to it.

We know the reform will level the playing field in terms of cost. Generally, rating will be based on broad geographical areas with little ability to modify the rates to account for differences in risk. This rating strategy is called “community rating”. Let’s compare community rating to the way groups are currently rated in Ohio (our primary warehouse location).

There is general scuttlebutt that the Blue Cross plans will fare the best and gain the most in the healthcare reform implementations. It may or may not be a coincidence that Blue Cross of Michigan also “community rates” their coverage. In Ohio, many groups fall under a formula of rating that takes employee and dependent health into the formula to calculate rates for insurance coverage. In Ohio there are 36 rating tiers. Tier 1 is reserved for the healthiest risk. Tier 36 is the maximum rate applied to the worst risk.

Let’s compare the same company as if it were located in Toledo, Ohio, on Alexis Road (1/2 mile south of the Ohio/Michigan border) and then re-rate the same group, except assume the company is located in Lambertville, Michigan, on Smith Road (1/2 mile north of the Ohio/Michigan border). In Ohio they could have a range of rates, from Tier 1 to Tier 36, depending on the health risks present. In Michigan … just one mile north, all companies would pay the same rate because of the community rating system.

Here is a rate comparison for a $3000 deductible HSA plan:

Calculate the total premiums of your group to see the cost comparison between tiered and community rating. Most find that community rating is about 50% more expensive than the Tier 1 (best risk) rate and almost 7% higher than the Tier 36 (worst risk) rates in Ohio. Of course, the employer’s dependent status will vary by employer. It is difficult to understand how costs will be less under the new healthcare reform program. This comparison is a casual look at what employers may expect in term of costs.

Poor procedures cost thousands…

The price of health insurance is important during this era of tight labor and customer demands to reduce cost. Companies spend many hours and much effort competitively bidding their health insurance each year in order to have the best cost available to them.

After all the effort to reduce cost, some companies give back much of the savings because of poor administration and accounting procedures. Poor internal practices for handling employee terminations from benefit plans are the main culprit.

For example, without good communication between the “plant” and “accounts payable” with regard to employees quitting or being removed from the benefit plans, extra premiums can be paid and never recovered. With just one late or “non-communicated employee termination” per month, a company could easily pay $8,000 to $10,000 more per year for medical insurance than they need to pay. Most insurers will only give credit for 30 to 60 days of back premiums, making recovery of funds almost impossible.

Another area that is difficult for some employers to monitor is the “accounts payable” function. Most insurers require that their invoice be paid in full each month. This means that you’ll pay for all employees listed on the invoice even if they are terminated from employment. The insurer will then give credit in future months for terminated employees. Without good procedures to track the credits that are owed to your company, it is easy to forget or overlook them.

TransparentRx recommends that employers develop written procedures and checklists for termination of employees. The procedure should outline all steps to be taken from the moment an employee is terminated to the time credit is received from your insurance company. A little extra supervision of your employees that are new to the positions responsible for employee terminations and insurance bills is also a really good idea.

Opponents say getting medical advice over a computer or telephone is appropriate only when patients already know their doctor.  Others are concerned that lower co-payments, and other incentives, will spur consumers to see doctors or nurses online just too save money.  The argument is that people will choose the more economical option, even if it is not the option they want.  Employers, however, will reap the most benefit.

Employees appreciate the low cost, convenience and efficiency.  Online consultations can run as low as $10 compared to $100 for a face-to-face visit.  The global telemedicine business is projected to almost triple to $27 billion in 2016, according to BBC Research.  Virtual care is a form of communication whose time has come and can be instrumental in lowering costs.

One major obstacle remains.  Many state medical boards make it difficult for doctors to practice telemedicine, especially interstate care, by requiring a prior doctor-patient relationship, sometimes involving a prior medical exam.  The situation in these states is getting worse, not better.  In 2010, the Texas Medical Board effectively created a rule which blocks a physician from treating new patients via telemedicine.

The only exception is if the patient has been referred by another physician who evaluated him or her in person.  The Texas Medical Board insists on licensing doctors in their state so that if something goes bad, a patient is injured, they have means to help.  From my point of view, this is a fair argument provided it is true.  Some medical boards are reducing restrictions, in mostly rural states, such as Nevada and New Mexico easing the licensing process.

The most common problems treated online are routine sinus and bladder infections, pinkeye, upper respiratory illness and minor skin rashes.  The patient completes a questionnaire (takes about 15 minutes) then connects with a physician via webcam, Internet connection and microphone.  The physician then sends an electronic prescription to the pharmacy that can be picked up in minutes. NowClinic and Virtuwell are just two companies that currently offer this type of service to employers.

Telemedicine is not intended to replace the intimacy of a patient-doctor relationship instead the intent is to supplement it through efficiency and lower costs.  Every self-insured employer should be taking a serious look into telemedicine for both its employees and bottom line.

The insurers settled and agreed to set up an objective database of doctors’ fees that patients and plan sponsors could rely upon.  However, the settlement didn’t require insurers to use it.  Instead of using the new $95 million database, all of which was paid for by insurers, they pulled the classic bait and switch.  Insurers began determining out-of-network reimbursement rates based upon Medicare rates.

In most instances, a policy mimicking Medicare rates reduces reimbursement more drastically than the initial rates regulators were trying to increase.  Doctors receive lower payments for services rendered and patients have significantly higher out-of-pockets costs.  I don’t defend insurers’ exorbitantly low out-of-network rates, but can you can see the hypocrisy from regulators in so far as Obamacare?

Today, most health plans have one level of benefits for care rendered by an in-network provider and a lower benefit for services from an out-of-network provider.  Insurance carriers encourage use of in-network providers because doing so helps control claim costs.

In-network providers have contracted with the insurance companies to provide medical care at reduced prices.  In exchange, the insurance companies direct patients to the in-network providers.  The arrangement increases business for the providers and decreases claims cost for the insurance company.

Treatment out-of-network is a different story.  Out-of-network providers have no agreement or incentive to reduce prices and control cost.  At times, however, they may provide a level of care or service that a particular patient needs or wants.  Patients seeking care out-of-network need to be aware of the way their benefits will be calculated.  There is more to it than the out-of-network deductible and co-insurance.

Insurance policies have clauses and exclusions against treatment that is not medically necessary. There are also provisions that the carrier only allows the Usual, Customary, and Reasonable (UCR) charge for a service provided.  Over the last few years, many carriers have begun to define their allowable charge or UCR limit as the amount negotiated with in-network providers.  The difference can be substantial.  For instance, if the retail price of a surgery is $4000, the discounted amount could be $2500, a $1500 discount.

When his son, Ethan, was a baby, doctors said he had a rare liver disease.  The family, which was in a health maintenance organization, had to appeal three times to get approval for the out-of-network surgery that saved the boy, now 10.  So Mr. Glaser was overjoyed two years ago when his employer switched to a PPO that promised out-of-network coverage.  Including premiums and deductibles, he and his employer paid about $14, 600 a year for family coverage.  But he discovered that at 150% of Medicare rates, it still fell far short.  In the case of a $275 liver check up, for example, the balance due was $175. (NY Times 4/24/2012)

Jennifer C. Jaff said she maintained out-of-network coverage with $14,000 in annual premiums because she has Crohn’s disease and is at high risk of colon cancer, which killed three of her grandparents.  Last year, after a terrible experience with an in-network doctor, she said, she returned to a top specialist who had performed her colonoscopy and upper endoscopy.   Even with 250% Medicare rates as the benchmark Ms. Jaff owed $3,137 of a $4,200 doctor’s bill.  (NY Times 4/24/2012)

If in-network benefits were paid at 80%, the patient would owe $500 for the surgery (20% of $2500).  A patient receiving care out-of-network would not receive the benefit of the discount.  Out-of-network benefits may be paid at 60%.  The patient’s responsibility is 40% of the UCR amount of $2500 or $1000, plus the difference between retail and the UCR amount ($4000 – $2500) or another $1500.  The total owed by the patient would be $2500 on a $4000 surgery.

To avoid surprises, it is important that your employees understand how out-of-network benefits are calculated.  Some providers will agree to write off all or part of the balance.  A financial agreement before receiving services is critical.  After services are rendered, many providers are not willing to discuss discounts.

On Wednesday September 26, 2012 I picked up a rental vehicle from the Cleveland airport.  The original reservation called for a mid-size automobile.  Since I was driving approximately 100 miles to our warehouse, I wanted to keep gasoline costs reasonably low.  Hence the request for a small automobile.  Those of you whom travel quite a bit I’m sure appreciate the Hertz Gold and Avis Preferred services.  As I approached the space where my vehicle was parked I noticed that it was not a Chevy Cruze but instead a SUV!
  
My first thought was, “wow a complimentary upgrade.”  Then it dawned upon me that no one is renting these vehicles due to the high cost of gasoline.  A few years ago I couldn’t get a free upgrade even if I got on my knees and begged for it.  Now Avis is giving away free SUV upgrades. I, with a smug, walked to the customer service counter and kindly requested a compact or mid-size automobile.  This saved our company $100 in unnecessary travel cost during the four day rental.
  
This past Sunday, September 30, 2012, I spent with friends at a local bar watching the football games.  All went as planned including my having to pay for the tab.  Because most of my friends are single women, this isn’t a big deal.  All that changed when the bartender handed me the bill.  I knew he was a shady character from the outset and like many people in a business transaction will dupe you if the door is left open.

I had been watching the bartender all evening and noticed he was pouring drinks for customers different from what they originally ordered.  I’m assuming his logic was they’ve been drinking all day so no one will notice the difference between Smirnoff and Grey Goose.  So, I’ll charge you for the Grey Goose and pocket the difference. Nonetheless, my bill was a lot higher than it should have been and included a tip! I told him exactly what I owed -and why- saving myself $75 in the process. 

More recently, employers have been increasing employee premiums, although this tactic can only be pushed so until diminishing returns begins to rear its ugly head [decreased employee retention]. Also, if healthy employees opt out of coverage self-insured employers might lose money.  That is why most companies keep premium increases in line with their cost increase.

Among other changes to improve prescription drug costs employers should consider these options for 2013 and beyond:

• The adoption of account-based health plans, which include health savings accounts and health reimbursement accounts.  The higher deductibles in these plans shifts more of the cost to employees.  In many cases, the only costs are attributed solely to prescription drugs.

• Some companies, 38%, will reduce spouse and dependent coverage, while 29% will use spousal waivers or surcharges. As employees have to pay more to cover family members it may be more economical for the husband to be under one plan and the wife under another.

• Limit company reimbursements for prescription drugs to only generic and specialty medications.  While brand medications help successfully treat many diseases, their generic counterparts prove to be therapeutically equivalent where efficacy is the primary concern. Some might say generics don’t work and in this case my suggestion is too try another. A different manufacturer’s product will do the job in many cases.

• Offer telemedicine consultations next year.  It is cheaper to contact a doctor by phone, e-mail and Skype rather than go to an office.  And an employee doesn’t have to leave the workplace.  It’s most often used for acute ailments such as flu and allergies.  It is not considered as a substitute to a doctor’s visit.  When a prescription is required the doctor may simply forward an e-script to the employee’s pharmacy of choice.

• Eliminate prescription drug coverage all together and instead pay for access to some sort of discount program or online pharmacy. Web sites like PrescriptionGiant.com may negotiate significant savings over chain drug stores and discount cards.  Employers could potentially eliminate huge mark-ups, administrative fees and other hidden costs that tend to be significant.  Obviously, PPACA guidelines will have to be considered in this scenario.

Most employers we surveyed, 90%, are committed to offering health care benefits.  They know it’s needed to attract and retain the best employees.  Still that leaves 10% whom are not committed.  If just one multi-national corporation stops offering health benefits then that will trigger other employers to follow suit even though most “say” they are committed to offering it.