5 New Ways to Cut Employer Prescription Drug Costs

As prescription drug costs continue to increase, plan sponsors are looking for ways to cut said costs such as reducing spouse and dependent coverage.  While total health care is predicted to rise 5.3%, to $11,507 per employee in 2012, the increase is slowing.

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.

The Truth about Prescription Drug Discount Cards

You’ve seen them in junk mail, doctor offices and grocery stores.  Prescription drug discount cards are ubiquitous and said to offer up to 75% savings on prescription drugs at retail pharmacies.  Is this really true?  Of course not.  In fact, prescription drug discount cards are one of the most misleading facets of the consumer drug industry.

Prescription drug discount cards are targeted for two sets of people:  uninsured and under-insured patients. Typically, no personal information is required as the cards are prepared in advance with all the necessary information.  For the purpose of this post, I consider participants of a HSA or other CDHC (consumer-directed health care) plan as under-insured.

It’s not too difficult for drug discount card companies to gain access to large pharmacy networks of 55,000 or more.  Furthermore, many of these drug discount card companies don’t have much infrastructure at all.  In some cases, they are run from a home office giving one the impression they’re a huge company with hundreds of employees and equal buying power.  Nothing could be further from the truth.
Here is how the prescription drug discount card works.  One simply picks up a card at their doctor’s office, grocery store or dry cleaners – there is no registration required.  If a particular card requires registration undoubtedly the information is used for marketing purposes and not to activate the supposed discount guarantee.  At the time of a new or refill prescription, the card is taken to the pharmacy and presented to the pharmacist for any applicable discount.  The pharmacist or pharmacy technician will then enter the BIN, Group and Member ID numbers.

Now the bait and switch begins.  The discounts promised by the cards are in many cases accurate. But, the starting point (original cost) is misleading.  The discount is based upon AWP or average wholesale price.  AWP is not the cost of the drug for the patient, pharmacy or manufacturer.  It is an arbitrary price used, in my opinion, to mislead the public and other non-informed purchasers of prescription drugs.
For example, the AWP for Metformin 500 mg x 90 is $125.00, but the actual cost to the pharmacy is only $6.50.  Your discount card offers 50% off ($62.50) Metformin and you think wow I saved $62.50 ($125 – $62.50)! Unbeknownst to you is Joe’s Corner Pharmacy, without a card, would’ve agreed to a negotiated price of $12.50.  That difference or $50 is essentially a shared profit between the card issuer and network manager.  You’ve effectively been hustled.
In the past, it was hard work; sweat and tears which gave people a big advantage.  Today, it is knowledge.  Those who have it win and those who don’t get duped.  Think of the AWP as MSRP or manufacturer’s suggested retail price.  Would you ever pay MSRP for a new automobile?  Strive to be well-informed about all your health care purchasing decisions and you’ll avoid being a patsy.

Two Ways to Avoid Paying a Premium for PBM Services

This week I was faced with an interesting dilemma. One that I’ve advised many clients recently, but it takes a different dynamic when it affects you personally.  I pride myself on the do as I do, not as I say philosophy. During the past year, I’ve been in the market for a new pharmacy management software system. My research has concluded thus two options remain; Mckesson Enterprise or QS/1.

The Mckesson software package offers all the bells and whistles plus the ability to easily scale as our business continues to grow. That a company with over $50 billion in annual revenue offers such a product is not surprising. In addition to the standard features expected in a pharmacy management system, Mckesson Enterprise also has integrated credit card processing, electronic PDMP reporting, and workflow management.  Unfortunately, it also comes with a mandatory cost of $7,000 for on-site training and purchase of one PC workstation.

The QS/1 system is installed with every feature required:  SaaS or web-based, PDMP reporting, DUR, and claims submission. Yet, there is no additional expense for training or purchase of a PC workstation.  The QS/1 account manager recommended on-site training (at an additional cost), but I inquired about remote training and my request was happily granted.  Furthermore, the monthly maintenance fee was almost 50% less than that of the Mckesson product saving us another $4,000/year!

Why does Mckesson not offer remote training?  More important, why would a company pay significantly more for a product it can attain elsewhere at a much more inexpensive price point? Consider the Benefit Pyramid below.

Mckesson has a great deal of brand awareness and equity.  Mckesson’s clients will often times pay a premium for this brand recognition. Consequently, Mckesson is able to charge clients a huge premium for two very distinct reasons:  the Benefit Pyramid and Cognitive Modification.
Managers are burdened with so much work that they often times make poor decisions only to avoid having more work added to their to do list.  Managers fall in the Pain Avoidance and Preservation stages of the benefit pyramid.  They are not as concerned about profitability as say an owner or CEO. As a result, bad purchase decisions are often made which lead to drastically overpaying for products and services.  A person with direct financial interests will balk and many times walk away.  Hence, my decision to go in a different direction.
Companies of all sizes are paying far too much for PBM services; much of it attributed to managers wanting to avoid more work as opposed to looking out for the company’s financial performance.  On the other hand a CEO or owner is concerned first about financial performance thus his/her position at the top of the benefit pyramid. A CEO or Lieutenant should always be directly involved, from beginning to end, in the decision to select a pharmacy benefit manager.
I almost made the decision to purchase Mckesson’s product even though it was more costly.  I created, in my mind, all sorts of reasons why their product was better.  Some of the reasons (or excuses) were I’m more familiar with them, they’re bigger so the product must be a better, and it is more expensive so the product must be the best of the two. Cognitive modification is the behavior of unknowingly creating reasons to justify a position all though it may not be in one’s best interest.
Is a big company name or wanting to avoid more work enough to warrant paying twice as much for similar services?  Not in my opinion. Decision-makers in the PBM selection process must avoid those two pitfalls and select providers based solely upon the environmental, social and economic return to their organization and its stakeholders.

Medicare Part D Deadline: October 15

Medicare Part D is the prescription drug program that has been in effect since the Medicare Prescription Drug, Improvement, and Modernization Act became law in 2003. Annually, employers offering any type of prescription drug benefit must notify Medicare eligible participants whether their coverage is creditable or not. Additionally, employers must make certain disclosures to the CMS within 60 days of the start of the plan year.

Determining who must receive the notice is a challenge for employers. It is more complicated than simply looking at birth dates. Individuals also become Medicare entitled through disability, having End-Stage Renal Disease or being a qualified railroad retirement beneficiary. 

Required recipients include not only Medicare enrolled employees and retirees, but also COBRA beneficiaries, their spouses and dependents. Thus, in order to avoid overlooking any participants who may be eligible for Part D, prudent employers should send the notice to all participants rather than engage in a time-intensive fact-finding exercise to determine the appropriate distribution list.

These notices must be provided at the following times:

• Before the start of each year’s election period (October 15)
• Before an individual first enrolls in the employer’s plan
• If plan coverage goes from creditable to non-creditable, or vice versa
• Upon the individual’s request
• Before an individual’s personal Medicare initial enrollment period

For assistance with this obligation, please contact your Benefit Manager.

PPACA: Employer Healthcare Coverage Mandate

A recent NFIB Research Foundation article illustrated the Employer Mandate, also known as PPACA’s employer shared responsibility provisions.  Businesses with 50 or more full-time employees or full-time equivalents (FTEs) face potential employer mandate penalties beginning in 2014.

If a business does not provide insurance and if at least one employee receives federal insurance subsidies in the exchange, the business will pay $2,000 per employee (minus the first 30).  Example: a business with 50 employees, two of whom are subsidized, would pay $40,000 in penalty (50 employees – 30 = 20 x $2000).

If a business does provide insurance, and if at least one employee receives insurance subsidies, the business will pay $3,000 per subsidized employee OR $2,000 per employee (minus the first 30)  – whichever is less.  So a providing business with two subsidized employees would be fined $6,000. With 14 or more subsidized employees (above the tipping point for the formula), the penalty for a 50-employee firm would be $40,000.

To qualify for subsidies, an employee must meet two criteria.  First, his or her household income must be less than 400% of the federal poverty level ($89,400 for a family of four in 2011).  Second, the employee’s portion of the insurance premium must exceed 9.5% of household income.

The mandate makes it extremely expensive to cross the 50-employee threshold.  For example, a mid-sized restaurant that goes from 49 to 50 employees could face a $40,000 per year penalty. Businesses will spend resources determining how many employees they have with respect to the employer mandate.  They will face time-consuming, arbitrary administrative burdens associated with employees seeking insurance subsidies in the new insurance exchanges.

Businesses subject to the employer mandate will receive periodic government reports on subsidized employees that inadvertently reveal personal financial data on employees’ spouses and families.  This raises discomforting privacy concerns and exposure to liability for employers.

For some firms, the employer mandate will result in large fines when circumstances change in their employees’ households.  For example, an employee’s spouse losing a job could trigger thousands of dollars in annual employer penalties.  Employers will not be entitled to know the details of what triggered their penalties  – unless they challenge the employee’s honesty before a government agency.  The employer mandate will increase costs, and businesses will pass them along to the consumers.

COBRA Notifications to Medical Providers

The hospital calls to verify benefits for an employee that terminated six weeks ago.  You heard that he had been severely injured in an auto accident the previous night.  He hasn’t elected COBRA; you know he doesn’t have the money to pay for it anyway.  You advise the hospital admitting clerk that unfortunately the employee is not covered by your benefit plan.  Who will pay for his claims?

Probably your company (not your insurance company) will cover the cost of claims for the terminated employee.  Final IRS COBRA regulations require you to disclose information about COBRA status during the election period or premium payment period.  Proper disclosure to a health care provider would allow them to make or facilitate payment of the COBRA premiums so coverage would be in effect to pay the claims.  Because you failed to make the required information available to them, more than likely liability will be decided in the courts.  Employers have not fared well in these cases.

Which side of the Fence are you on?

Because you follow my blog, my position on traditional PBMs should be clear. They’re rent-seekers and should not be given blank checks, which essentially is what most plan sponsors do.  Read the following article by Bruce Shutan. Occasionally, I like to post a peer’s work to further illustrate my point(s).  Each party has an agenda, however it’s up to you to decide which side of the fence you’re going to join.

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A battle is brewing to influence public opinion over the drivers of rising prescription drug benefit costs, cost-containment strategies and the path to meaningful health care reforms.

On one side of this spirited debate to win the hearts and minds of HR and benefit practitioners, among other key stakeholders, is the National Community Pharmacists Association (NCPA) in Alexandria, Va., which claims that pharmacy benefit managers drive up health insurance costs and restrict patient choice.
Just across the Potomac River in Washington, D.C., is the Pharmaceutical Care Management Association (PCMA), which vehemently defends its PBM membership.
A recent salvo fired by NCPA includes a humorous video, “The Third Wheel,” and website (www.whorunsmydrugplan.com), which cast PBMs as culprits – with the former portraying them as a prescription middleman impediment to patient relations with doctors and pharmacists.
NCPA describes spread pricing, rebate pumping and mail order as “cost-inflating PBM practices.” The campaign is a response to PCMA’s “That’s What PBMs Do” advertising from earlier in the year, according to a spokesman for that group.
“Too many plan sponsors, policymakers and patients remain unaware of how large pharmacy benefit managers affect their prescription drug benefit and their health care premiums,” NCPA CEO B. Douglas Hoey said in a recent statement.
“For too long,” he continued, “the PBM industry has benefited from a lack of oversight and regulation, which has eroded the value of the prescription drug benefit to consumers. We have seen prescription drug costs rise, insurance premiums and patient co-payments increase, higher PBM profits and diminished patient choice – while reimbursement to pharmacy small business owners for providing prescription drug services continues to decline. It’s fair to ask: Where’s the money going?”
The NCPA credits its more than 23,000 independent community pharmacies for dispensing lower-cost generic drugs and countering a $290 billion problem of non-adherence with prescribed medications. The community pharmacy model also is described as superior to PBM-owned mail-order pharmacies.
Charles Coté, the PCMA’s assistant vice president of strategic communications, counters that “independent drugstores are trying to maximize their own reimbursements” – noting that PBMs are hired by large and small employers, unions, Medicare Part D, the Federal Employees Health Benefits Program and state government employee plans to drive down prescription costs.
He says PBMs will save consumers and payers nearly $2 trillion in prescription drug costs over the next decade and took exception to the NCPA’s portrayal of his group’s members. “Employers want even greater use of proven PBM tools to save money and reject the drugstore lobby’s agenda that would force them to pay more for prescription drugs,” according to Coté.
 
He says that agenda includes stopping employers from promoting home delivery of 90-day prescription drug refills, forcing plans to include drugstores that overcharge and demanding higher payments from the government and employers.
 
by Bruce Shutan, a former EBN managing editor, is a freelance writer based in Los Angeles.
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Let’s break this down…

“Too many plan sponsors, policymakers and patients remain unaware of how large pharmacy benefit managers affect their prescription drug benefit and their health care premiums,” NCPA CEO B. Douglas Hoey said in a recent statement.

Simply put, this statement is true. Ask 100 benefit managers and/or brokers what is Differential Pricing and 75% will get it wrong. The reality is that decision-makers for payors rely heavily on their agents whom either don’t know enough about the PBM industry or just don’t care enough to get better deals for their clients. Worse yet, many are aligned with PBMs earning fees and commissions!

“For too long,” he continued, “the PBM industry has benefited from a lack of oversight and regulation, which has eroded the value of the prescription drug benefit to consumers. We have seen prescription drug costs rise, insurance premiums and patient co-payments increase, higher PBM profits and diminished patient choice – while reimbursement to pharmacy small business owners for providing prescription drug services continues to decline. It’s fair to ask: Where’s the money going?”

Most every word above from Mr. Hoey is true.  He has exaggerated somewhat with such a broad use of the word PBM.  A truly transparent and pass-through PBM will not engage in any deceptive practices.  Furthermore, it will sign on as a fiduciary.  See my previous blog post titled “Rent-Seeking…”

Charles Coté, the PCMA’s assistant vice president of strategic communications, counters that “independent drugstores are trying to maximize their own reimbursements…” – noting that PBMs are hired by large and small employers, unions, Medicare Part D, the Federal Employees Health Benefits Program and state government employee plans to drive down prescription costs.

Is Charles serious (keep in mind that he works for one of the largest PBM lobbying arms)? Doesn’t every business want to maximize revenue? PBMs drive cost down there is no argument here. The problem is that traditional PBMs like Express Scripts and CVS/Caremark do not pass all those cost savings on to clients, which is the case for a PBM signing as a fiduciary. In fact, deceptive practices are far too often utilized by these traditional PBMs to hide cash flow from deserving clients. 

 
Closing comments…

I would argue that PBMs aren’t hired primarily for their ability too drive prescription costs down, but instead too manage the drug benefit; claims adjudication, formulary management, eligibility, DUR etc…Most self-insured companies would hire a PBM (if a drug benefit were offered) as long as the cost wasn’t extremely exorbitant, relatively speaking.  PBM services save companies a boat load of time and hassle – this is the real benefit. Any cost reduction is just an ancillary feature. What do cost savings really mean when most payors don’t know the actual cost of their drug benefit to begin with? Think about it.

Healthcare Reform – Full Speed Ahead!

In June, the Supreme Court ruled 5-4 that the PPACA signed into law on March 21, 2010, is by and large constitutional. What does that mean to you as an employer? The change in course of healthcare delivery will proceed as planned when the law was passed. There will be subtle and not-so-subtle changes to which we must adapt.

As for action that must be taken by employers, there isn’t much. Most of the changes are occurring behind the scenes at the insurance company and insurance provider level. Summary of Benefits and Coverage (SBC) documents will need to be distributed to your employees and large employers (250+ employees) will have to track and report benefit costs to the IRS.

The biggest event will be on January 1, 2014, when the much talked about insurance exchanges are to be effective. Some employers are anxiously anticipating some relief from the health care burden once the exchanges are effective, while others are not so sure. It is clear now that most states will not have a reliable exchange in place by 2014. Theoretically, the federal government will step in and provide an exchange in any state that misses the deadline.

Employers plan on “off loading” their health care coverage to the state exchange by paying a penalty and giving employees cash to buy their own coverage much like employers dropped their old pension plans in favor of the “defined contribution” 401K programs. It is all about controlling costs. Federal tax subsidies are available in the state exchange (a family of four qualifies for the subsidy if their income is less than $88,000).

Employers simply can’t overlook this windfall. The problem will be that no subsidy will be granted if employees enroll in a private or federal exchange. In other words…. No state exchange, No federal subsidy. This may leave the employers holding the bag longer than expected. Off loading benefits may not happen as quickly as 2014. Is this good or bad…it depends on who you ask.

HSA vs. HRA: What are the Differences?

Consumer-driven health care plans (CDHP) typically have two components. First, they have an underlying traditional health plan that includes significant deductibles and/or coinsurance. Second, they have some type of individual health account that is used to offset the deductibles and/or coinsurance and that provides some type of tax advantage to the covered individuals.

The structure of the underlying health plan and the amount of control granted to the individual over the account distinguish one type of CDHP from another. Employers typically use one or both types of consumer driven health plans. These are health savings accounts (HSA) and health reimbursement arrangements (HRA). Health Savings Accounts (HSA) A HSA is an individual account that can be funded with employer and/or employee money, from which individuals can be reimbursed tax-free for qualified medical care.

Otherwise, the money accumulates with tax-free interest until retirement, when an individual can continue to withdraw funds for medical care tax-free or withdraw funds for any purpose and pay normal income taxes. Individuals own their HSAs. Individuals with a High Deductible Health Plan (HDHP) can open HSAs and make tax-free contributions in 2013 of up to $3,250 for individuals and $6,450 for families.

HDHPs are defined in 2013 as plans with deductibles of at least $1,250 for individual and $2,500 for family coverage. A HSA can be established for an individual who is covered by a HDHP that includes annual out-of-pocket limits of no more than: $6,250 for individual; $12,500 (for family); is not covered by another plan, except for certain permitted insurance; is not eligible to be claimed as a dependent on another person’s tax return; and is not enrolled in Medicare benefits.

Proponents of HSAs say that these accounts will reduce a participant’s overall health care costs without adversely affecting the participant’s health. HSAs also create a tax incentive to save for future health care expenses and decrease dependency on health insurance. They could offer a way to help employees accumulate funds over time to pay for retiree medical coverage. The overall intent is to shift some small health care spending decisions to the cost conscious individual consumer.

Health Reimbursement Arrangements (HRA) Employer-funded HRAs can allow annual unlimited rollover of unused balances and may be tax-free to employees provided they meet certain requirements. HRAs typically are used with HDHPs, in which part or all of the deductible can be reimbursed through the HRA. HRAs are available to current employees and retirees, their spouses and dependents, spouses and dependents of deceased employees, and COBRA qualified beneficiaries, but not to the self-employed.

HRAs are not taxable to employees and cover only medical expenses as defined by the plan provisions. They must comply with the nondiscrimination requirements of a self-funded health care plan and are subject to COBRA continuation coverage requirements. Employers own the HRAs and can determine whether and how the money may be used (rolled over) in subsequent years.

Click here for a side-by-side comparison:  HSA vs. HRA

What the Healthcare Ruling really Means to Employers

Thanks to SCOTUS (Supreme Court of the United States), the country now has a new law pledging national health care reform. 

Widely praised or condemned depending on party lines, there is no doubt that the Patient Protection and Affordable Care Act  means big changes for health care providers, insurers, drug manufacturers, the uninsured, employees, small businesses and large employers. In other words — everyone.
Trying to make sense of all 2,400 pages of the bill can be daunting. This is particularly true for employers, who will likely need to begin to respond by auditing their workplace and revising their policy changes.
So, what does an employer need to know about complying with the law?
The health care bill requires nearly all Americans to obtain health insurance. The law expects that most workers will get that coverage through their employers and has created a system of subsidies and penalties to make this possible.
If you’re an employer, the size of your workforce is significant, as the law has different requirements depending on the number of employees that your business employs.
The major aspects of the health care bill as it relates to business are described below:
What is a “small business”?
Under the Act, a small business is not specifically defined, but a number of sections of the law apply only to entities with fewer than 25 employees (for more detail see below.)  However, under some sections of the law, the effective company size is 50 or 100 employees.
What are “insurance exchanges”?
Beginning in 2014, health insurance will be available to individuals and small businesses through state-run “exchanges.” These will require insurance companies to compete for business in the marketplace. The objective is to make it it easier for individuals and small businesses to obtain health insurance at a lower price.
The exchange program for small businesses, known as the Small Business Health Options Program (SHOP), will allow small businesses to pool together to increase their purchasing power. This will allow these businesses to offer health insurance to their employees at rates similar to those available to large corporations.
SHOP is available to small businesses with up to 100 employees, although states have the option to limit participation to businesses with 50 employees or less until 2016. If a business participating in SHOP grows to over 100 employees, it may continue to take advantage of the program. Beginning in 2017, states may opt to allow businesses with more than 100 employees to participate in SHOP as well.
The exchange program is also important because larger employers may be penalized if some of their employees opt to obtain insurance through an exchange and not through the company’s insurance plan (for more detail see below.)
Are employers required to provide health insurance to their employees?
All businesses, regardless of industry, with fewer than 50 employees are exempt from having to provide health insurance. However, as explained above, such smaller employers may opt to offer health insurance at a reasonable cost by participating in a SHOP exchange.
Larger businesses are subject to a number of requirements and potential penalties, depending on the number of employees they have and the type of coverage they provide:
  • Automatic enrollment: Employers with more than 200 employees are required to enroll new employees in their health care plan, subject to any waiting period. Employers must provide notice of employees’ right to opt out of automatic enrollment.
  • Notice of coverage options: Employers must give employees notice about the availability of an insurance exchange.
  • Penalty for not providing insurance: Employers with over 50 employees that do not provide insurance must pay a penalty of $2,000 for every employee in the company if even one employee opts to obtain insurance through an exchange. However, the first 30 employees are not counted in calculation of the penalty. Example: an employer with 75 employees would pay the penalty for 45 workers, or $90,000 (45 x $2.000).
  • Penalty for providing insurance that is “too expensive”:  Employers with more than 50 employees that do provide insurance must pay a penalty if any of their employees obtain a subsidy to help pay for insurance. The penalty equals $3,000 per worker who uses the subsidy OR $750 for every employee at the company, whichever is less.
Is there help for small businesses to provide insurance for their workers?
From 2010 through 2013, businesses with fewer than 25 employees and average annual wages of $40,000 or less may be eligible for a tax credit of up to 35% if they pay for at least 50% of their employees’ health insurance costs.
Beginning in 2014, small businesses that purchase health insurance for their employees through SHOP can receive a two-year small business tax credit of up to 50% of the cost of the premiums.
While small businesses are not required to obtain insurance for their employees through the exchanges, the available tax credits will likely spur many smaller employers to purchase coverage for their workforce.
What special rules cover employers with fewer than ten employees?
Tax credits are available for small businesses on a sliding scale depending on the number of employees and average annual wages.
Businesses with 10 or fewer employees and average annual wages of $20,000 or less are eligible for the full 35% credit between 2010 and 2013 and then a 50% tax credit beginning in 2014.
What is the “reconciliation bill”?
As if the law itself weren’t complicated enough, the Act could not become fully effective until the Senate also passed a second bill which reconciled its version of the law with the version passed by the House. The Health Care and Education Reconciliation Act, H.R. 4872, makes various technical changes to the law as originally passed by the Senate. For example, it amends the size of certain employer penalties for failing to provide affordable health insurance.
The complexity of the Act will likely lead to the need for additional answers about how various sections of the law will be implemented over the coming weeks and months.
I will continue to report on changes or clarifications to the law as they become available.
None of the information provided herein constitutes legal advice on behalf of TransparentRx, LLC.

Defragmentation: The Net Effect of Healthcare Reform

It’s finally become painfully clear to me the primary goal of healthcare reform. No, it’s not to reign in rising healthcare cost and it’s certainly not to improve patient outcomes. The primary goal of healthcare reform is defragmentation or to reorganize in order to prevent fragmentation. If I’m correct there are more losers than winners.

I’ve discussed, at length, in previous posts the inability of Walgreens and Express Scripts to come to a mutual agreement. Now Walgreens, the largest chain drugstore in the USA by almost 2/1, has agreed to purchase a 45% stake in Alliance Boots for $6.4 billion. Boots is a leading international, pharmacy-led health and beauty group delivering a range of products and services to 21 countries primarily in Europe. This investment makes Walgreens the largest single purchaser of prescription drugs in the world.

Why would Walgreens make such a large investment even before the Supreme’s Court ruling on PPACA? In cities all across America small healthcare entities are being gobbled up by behemoth healthcare organizations. Small physician practices are closing their doors only to become salaried employees at hospitals. Not independent contractors as is customary, but salaried employees taking a steep pay cut.

Small hospitals are being acquired by larger hospital corporations and these hospitals are purchasing specialty physician groups. Take the Kansas University Hospital acquisition of a 42,000-square-foot inpatient surgical hospital building to add to its system of services. The hospital plans to hire the facility’s more than 130 non-physician employees. KU Hospital intends to use the building for surgery by a variety of specialties. A new name for the building will be announced later, along with the specialties using the new space.

KU Hospital did not disclose the cost of the transaction, which is expected to close in the early summer. The Heartland Surgical Specialty Hospital plans to relocate its operations to a new location, according to the KU Hospital release. This is the purchase of a business disguised as a “building” purchase.

Heartland is going to relocate without its 130 non-physician employees, really? Many of Heartlands physicians will join KU hospital as salaried employees.

The purpose of defragmentation is control. The federal government wants to have more say about how healthcare is distributed in this country. Small self-insured (grandfathered) businesses have largely been unaffected by healthcare reform. In fact, my opinion is that PPACA has offered small and medium size businesses more choices at least until now.

The Obama administration is investigating the possibility of imposing limits on stop-loss coverage that could severely undermine the ability of small and midsize businesses to offer self-insured plans. It stems from a formal request for information about federal rules relating to stop-loss insurance, which is seen as a precursor to a regulation.

Critics contend that such a move would force these employers to adopt less flexible, fully insured plans and funnel millions of Americans into health insurance exchange that are slated to take effect in 2014 under PPACA. They also are crying foul about big business having an unfair advantage and raising questions about what may be motivating regulators to pursue this action.

Several leading Republican senators have sought an explanation from the Departments of Treasury, Labor, and Health and Human Services as to why they submitted an RFI. Olympia Snowe (R-Maine), Michael Enzi (R-Wyo.) and Tom Coburn, M.D. (R-Okla.) recently wrote in a letter that stop-loss insurance “is critical for operating a predictable, affordable self-insured health plan. Any possible disruption of these services is of paramount concern to lawmakers, employers, and tens of millions of plan participants.”

Lobbyists for small businesses and self-insured plans are sounding their own alarms over the prospect of stop-loss restrictions on self-insurance.  “The preamble of the RFI clearly demonstrates that the regulators have received significant disinformation about how the self-insurance marketplace actually operates and the role of stop-loss insurance,” explains Mike Ferguson, COO of the Self-Insurance Institute of America, Inc. in Simpsonville, S.C.

Amanda Austin, director of federal public policy for the National Federation of Independent Business in Washington, D.C., believes that the proposal is partly driven by a desire to ramp up PPACA insurance exchanges, calling it “one of many examples of PPACA-inspired micromanagement of health care.” NFIB fears that requiring its members to shuffle more paper will interfere with business growth.

The writing is on the wall. With help from the federal government, large healthcare firms are in acquiring mode. From pharmacy chains to hospitals to PBMs each is looking for a way to account for lower margins. The federal government will foot more of the bill thus profit margins will come down. But, any loss in profit margin will be made up for through volume.

The lower the number of players in the market the more control and power the government exerts. This ultimately will lead to higher prices and lower quality services. Consider the airline industry. There are fewer players and prices have drastically increased while the quality of service has suffered. In fact, airline industries have become down right arrogant. In the case of healthcare reform, history will undoubtedly repeat itself.