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…

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…

Rent-seeking is a term economists use to describe an organization's ability to generate above average economic returns without providing any relative incremental value. Wikipedia may explain it a bit better. Wikipedia Definition The simplest definition of rent-seeking is to expend resources in order to gain wealth by increasing one's share of currently existing wealth instead of trying to create wealth. Since resources are expended but no new wealth is created, the net effect of rent-seeking is to reduce total social wealth. It is important to distinguish between profit-seeking and rent-seeking. Profit-seeking is the creation of wealth, while rent-seeking is the use of social institutions such as the power of government to redistribute wealth among different groups without creating new wealth. Rent-seeking generally implies extraction of uncompensated value from others without making any contribution to productivity. The origin of the term refers to gaining control of land or other pre-existing natural resources. In a modern economy, a more common example of rent-seeking would be political lobbying to obtain government benefits/subsidies or to impose burdensome regulations on competitors in order to increase market share. Studies of rent-seeking focus on efforts to capture special monopoly privileges such as manipulating government regulation of free enterprise competition. The term monopoly privilege rent-seeking is an often-used label for this particular type of rent-seeking. Often-cited examples include a lobby that seeks tariff protection, quotas, subsidies, or extension of copyright law. How does a traditional PBM employ a rent-seeking methodology? Most recently, the FTC approved the acquisition of Medco by Express Scripts. The net effect of this purchase is not a creation of new wealth, but instead a reduction in social wealth. The FTC approval of this acquisition will ultimately benefit only the government, Express Script and Medco stockholders. Patients won't pay lower prices or see a real difference in their health care outcomes. Retail pharmacies and PBM competitors certainly won't benefit from this acquisition. History tells us that greed will supersede social responsibility almost 100% of the time. Express Scripts has used the government, with powerful lobbying, to attain near monopolistic privileges. Some state governments, Texas for example, require PBMs to take on the role of a fiduciary. The problem is that this requirement doesn't extend to private enterprise. I say it's a problem not because the government hasn't interfered, but the opposite. Private enterprise hasn't exercised its right to require a fiduciary role from their PBM. A transparent PBM, acting as a fiduciary, shares the risk and essentially agrees to be 100% transparent in all of its related business dealings. This transparency includes sharing third party pricing contracts with pharmacies and rebates from manufacturers. It also includes offering real-time access to MAC price lists for retail and captive mail-order pharmacies. As specialty drugs become a larger part of the dispensing mix, it's imperative to be fully aware of pricing arrangements between biotechnology companies as well. Here is an example of a typical fiduciary disclosure in a transparent PBM contract. FIDUCIARY DUTY AND DISCLOSURE   “No Name…

In a classic bait and switch George Paz, CEO of Express Scripts, has subtly lowered the expectations for the ESI and Medco merger.  As I learn more about George I'm not quite sure what to think about him.  Here is what I've gathered thus far.  He's a shrewd businessman, but not very smart, yet he's smart enough and frugal.  George is also aggressive, but will change his position faster than Cory Booker if it will bring ESI an advantage.  Sometimes to the detriment of his stakeholders. Here are a few excerpts from an interview he participated in with the Wall Street Journal.  It was published on May 23, 2012. WSJ:  What were the biggest disagreements with Walgreen? Mr. Paz:  I should only be paying for things that matter.  I shouldn't be paying for things that don't matter.  And, if Walgreen wants a premium, and they're not doing anything different, why should I pay them more?  One of the issues was the way Walgreen defined generic drugs.  That would have been a billion dollar effect on my book of business.  That would've been a huge windfall back to Walgreen that doesn't exist in any of my other [pharmacy] contracts. [Regarding paying a premium, a Walgreen spokesman said virtually all other payers see that we are in line with the market and have us in their networks."  On generics, the spokesman said that "Express Scripts insisted on being able to unilaterally define contract terms, including what does and does not constitute a brand and generic drug."] WSJ:  Talk about the role pharmacists should play in healthcare. Mr. Paz:  I said one time that it shouldn't matter who counts to 30 for filling up retail prescriptions, and I caught a lot of grief for that, and probably rightfully so. But that wasn't the point.  The point is that putting pills in a bottle doesn't change health outcomes.  It doesn't matter whether you get your pills at Walgreen or CVS or Kroger.  The reality is:  What happens with that process?  Who is taking care if that patient?  It's not counting pills and sticking them in bottles.  That doesn't add any value. WSJ:  How does Express Script use its pharmacists? Mr. Paz:  I've taken those pharmacists and asked them to reach out to doctors.  Doctors still misprescribe very often.  They leave gaps with care.  People with asthma, they they don't take their inhalers, they wait until they're sick, and by then, it's too late.  Now we're already running up the bills and going to the emergency rooms.  We're using our pharmacist to do the things they were educated to do, not to count pills.  That's not where the value is. WSJ:  How might the company's size help drive down healthcare costs for individuals? Mr. Paz:  Medicare and Medicaid costs are skyrocketing.  The cost of compliance with some pretty tough rules has become very costly.  If I'm small, I have to spend the same amount of money to comply with Medicare, whether I'm 10 members or I'm 10…

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.  If in-network benefits are 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.

Physicians' political views on healthcare reform vary widely, but the findings of a recent survey by Jackson Healthcare show that many agree on at least one thing:  PPACA does not sufficiently reform the U.S. healthcare system. Jackson Healthcare conducted an online national survey of physicians to ascertain whether respondents believe PPACA effectively addressed previously stated physician concerns about healthcare reform. Those concerns, identified in earlier physician surveys by Jackson Healthcare, were stated as such: Defensive medicine is a key driver of the ever-expanding cost of U.S. healthcare Defensive medicine has important effects beyond cost Tort reform fails to reduce the practice of defensive medicine 1,440 physicians completed the latest survey. Analysis of the responses indicates physicians do not believe PPACA provides the necessary reforms to alleviate their concerns and they gave PPACA an average grade of D. Key Findings: Nine out of ten physicians do not believe PPACA provides effective reform 38 percent believe PPACA did nothing to reform the healthcare system 31 percent believe PPACA did not go far enough 22 percent believe PPACA went too far and will impede physicians' ability to practice medicine 52 percent of physician respondents believe PPACA will negatively affect their practice through    decreased reimbursements, revenues and longer work days 20 percent of physician respondents believe PPACA will positively affect their practice as more patients access care and the number of no-pay cases decreases 11 percent of physicians are making changes to their practices in response to PPACA, including EMR / HER implementation, changing careers / retiring, opting out of Medicare / Medicaid Physicians are equally divided on whether PPACA should be repealed (52 percent in favor of repeal vs. 48 percent). HSA Qualified Medical Expenses: Confusion between 502 and 213 Confusion exists about what is a qualified medical expense for Health Savings Account (HSA) withdrawals.  Different government sources refer to IRS codes sections 502 and 213, as do industry sources.  Consumers want a list of qualified medical expenses yet no one, not even the government, is willing to commit in writing. I will attempt to clarify this confusing HSA issue. The Treasury Department has released guidance for HSA implementation and use.  Treasury Notice 2004-2 was issued to clarify HSA rules and issues. Answer 26 of the guidance states “qualified medical expenses are expenses paid by the account beneficiary, his or her spouse or dependents for medical care as defined in Section 213d but only to the extent the expenses are not covered by insurance otherwise.” This seems clear enough.  So where does the 502 language come into play? IRS Publication 969 (instructions for HSAs) says that qualified medical expenses are explained in Publication 502. I believe 213 and 502 provide essentially the same guidance to HSA beneficiaries. Internal Revenue Code 213d is the actual code section dealing with the definition of medical expenses. IRS Publication 502 is the tax filing instructions when claiming medical and dental expenses on your tax return. Publication 502 is a summary of IRC 213 and is more simply written. Hopefully, this provides some clarification on this matter.  The aforementioned is my opinion; I cannot render tax or legal advise.  Please…

U.S. health insurers will pay $1.3 billion in rebates to consumers and employers this year under a provision of President Barack Obama's healthcare reform law that penalizes plans that devote too little of their premium revenues to health services, an independent study showed on Thursday. The study, published by the nonpartisan Kaiser Family Foundation, said the data illustrated some of the tangible benefits that consumers and employers could expect from the embattled 2010 reform law if it survives two major legal and political election-year challenges. Under the law, called the Patient Protection and Affordable Care Act, health insurers must spend at least 80 percentage of premium revenues on health expenses and quality improvements. The rule is intended to limit the amount the $850 billion health insurance industry devotes to marketing, administration and profits. Kaiser, a nonprofit healthcare research group, found that 31 percent of consumers in the individual insurance market could expect to receive a total of $426 million in rebates on 2011 premiums, for an average of $127 per person. About 20 percent of the insurance industry's market for large employers could receive $541 million, while more than one-quarter of the small group market that serves small businesses could look forward to rebates totaling $377 million. The rebates are due by Aug. 1 and most of the money is expected to go to employers rather than consumers. The healthcare law has proved unpopular with many voters and could be struck down by the U.S. Supreme Court by the end of June or repealed next year if Republicans gain control of the Congress and White House in the November election. If the high court overturned the law, insurers would no longer be required to comply with the rebate provision. A main target for public dislike is a reform provision that requires most Americans to buy private health insurance by 2014 as part of a plan to extend health coverage to more than 32 million people who are uninsured. Reform advocates insist that much of the public's dislike for the law stems from a lack of knowledge about the advantages it offers to consumers and others. Some of the biggest rebate payouts are expected in states, including Texas and Florida, where the reform law faces some of its stiffest opposition from Republican politicians and other conservatives. "While the health reform law as a whole continues to divide the American public, there are tangible changes taking place that benefit consumers," said Kaiser President Drew Altman. "Greater regulatory scrutiny of private insurance is improving value and helping to get excess costs out of the system," he added. The Kaiser study is based on insurer filings to the standard-setting National Association of Insurance Commissioners and includes rebates already paid and insurer estimates of planned payments on 2011 premium revenues.

Simply put, panflation refers to the devaluation of everything.  Stay with me here.  I'm going to make some specific points that relate to your everyday life. Then I'll bring it home with some very specific references to the pharmacy benefit management industry.  Panflation is influencing plan sponsor behavior. Take the rarely reported issue of  "name inflation."  There was a time when a platinum credit card meant something.  You were someone who always paid bills on time, made a bit more money then the average consumer and had proven it over time.  It made you feel special. That you were being rewarded for your diligence. Now, even if one has bad credit he/she can qualify for a platinum credit card. The exclusivity of the platinum credit card has been devalued, but some consumers have yet to recognize this trend.  The travel industry is notorious for such hyperbole. Many hotels no longer offer standard rooms, but instead offer deluxe rooms. How many times have you booked a superior or deluxe room at a hotel only to be disappointed upon check-in?  You walk into the hotel room and the view is of a brick wall. There is hair in the sink and the room smells like cigarette smoke. Webster's dictionary clearly states that superior means, "above the average in excellence or of higher grade and quality."  Inflating terms is a tool the travel industry utilizes to lure unsuspecting customers into making a purchasing decision.  The travel industry is not the only participant in this plague. Next, let's look at the rarely reported problem of "title inflation." It seems as though everyone today is an expert, consultant or specialist.  When confronted with an important decision most of us tend to rely on these so called experts to help guide us through difficult processes. Sometimes we rely too heavily on people based solely upon a title. In most professions, excluding the obvious like a physician or lawyer, there is no special training required in order to be labeled as an expert or consultant. The PBM industry is notorious for this sort of title inflation. I recently spoke with a benefit consultant from a reputable consulting company not to long ago. Our business together involved a client of hers seeking to reduce prescription drug expenses. Upon conclusion of our re-pricing analysis the results were presented and the savings substantial.  She proceeded to ask,"how am I able to determine if a PBM is fully transparent?" When she posed this question I was both befuddled and disturbed at the same time. Her client is relatively large at almost 60,000 scripts per year and was grossly overpaying for its pharmacy benefit. They are relying on you [firm] to protect them, but you can't even though you're an "expert." Plan sponsors must make sure to have a basic understanding of pharmacy benefit management.  It takes some time, but not much.  Participate in webinars and read a blog or two for the most recent industry best practices. Then hold your PBM and its…

All too often, employees are forced to make important choices that can affect their family’s health and health-related financial security. Making these decisions can be stressful and confusing; especially when a family member is ill or when considerable medical expenses are involved. That’s why many insurance companies now provide treatment cost estimators which provide an easy way to see how much certain procedures and services will cost before a visit to a provider. Armed with this information, employees can make cost effective choices and more informed decisions. Knowing the costs upfront is important due to their responsibility for paying a portion of their health care costs. And it’s helpful for budgeting aspects of their health benefits and health insurance plans, such as health savings accounts and flexible spending accounts, or for seeing how quickly they may reach their deductible and coinsurance limits. Employees will need to create a login to their insurance company plan to access these tools. Also, it is important to note that some carriers’ sites display rates billed by the providers and others display the contracted, negotiated rates for in-network providers. As of this posting, Medical Mutual, Aetna, and United HealthCare use the negotiated rates in their illustrations. However, Anthem uses only the rates billed by the provider, which may not provide an accurate picture to employees about their actual costs. PPACA: What Will the Supreme Court Decide? In late March the Supreme Court took the somewhat unusual step of setting aside three days on its calendar just to hear the various aspects of the Constitutional challenge to the Patient Protection And Affordable Care Act. The schedule affirms the universal expectation that the court will issue a ruling on the healthcare law in June, at the height of the 2012 campaign. The Supreme Court sessions began with one hour of arguments on whether it can reach a decision on the reform law before 2014. There is a possibility that a separate federal law will prevent the courts from ruling until the law’s individual mandate has taken effect. The justices then heard two hours of arguments on the core question of whether the mandate is unconstitutional. And, finally, the court heard two and half hours of arguments on two issues: how much, if any, of the law’s other provisions can be upheld if the mandate is unconstitutional, and whether the health law’s Medicaid expansion is constitutional. There hasn’t been another case in recent memory that’s been argued on this kind of schedule. It no doubt reflects the Court’s own recognition of the complexity and importance of the issues involved. SBC: Summary of Benefits and Coverage The Departments of Health and Human Services, Labor, and Treasury, have issued the final regulations for the Summary of Benefits and Coverage. To help consumers better understand and compare health plans, insurers and group health plans are required to provide a new, uniform way to show benefits and define health care industry terms. The effective date for providing the SBC begins on September…

For the record I was an opponent of the Express Scripts (ESI) and Medco merger.  The FTC, in a 3 to 1 vote, has determined that the merger doesn't violate antitrust laws thus permitting it to move forward. The two behemoth PBMs quickly completed the merger today.  Let's examine the impact on stakeholders in the U.S. pharmaceutical supply chain:  manufacturers, pharmacies, payors, and patients.  From Wikipedia, "A true duopoly (from Greek duo δύο (two) + polein πωλεῖν (to sell)) is a specific type of oligopoly where only two producers exist in one market. In reality, this definition is generally used where only two firms have dominant control over a market. In the field of industrial organization, it is the most commonly studied form of oligopoly due to its simplicity." The merger of ESI and Medco essentially creates a duopoly.  Combined with CVS/Caremark, the nation's second largest PBM, the two companies account for 73% of all prescriptions dispensed in the USA. Pharmaceutical manufacturers eager to place expensive brand prescription medications onto PBM formularies will experience more pressure from ESI to increase rebates and lower prices.     If you've read all my previous posts then you know rebates from manufacturers to PBMs take on many names and sometimes aren't even classified as rebates, but instead as reimbursements.  The point is that any money (rebate) paid out by a manufacturer to a PBM is due solely to the PBM's huge patient database therefore100% of those rebates should go back to the payors [whom fill these databases with patient lives]. I'll discuss this more in a bit.    Some pharmacies, like manufacturers, will experience increased pricing pressure from the largest PBM in the USA.  Prior to the approved merger ESI had already flexed its muscle with Walgreen's. The two companies weren't able to agree on reimbursement rates.  ESI proposed to lower rates. Walgreen's was resistant to adhere to ESI's pricing pressure at least until now.  I expect Walgreen's has reluctantly swallowed their pride and is currently on the phone to ESI begging for the deal it initially shot down.  Good luck with that!      Chain pharmcies will not be the only class of trade to take a hit in this deal.  Independent pharmacies, including mail-order, specialty and retail, will see EBITDA decline.  Pharmacies are reimbursed, by PBMs, based on a pre-determined pricing contract.  I can tell you as an independent pharmacy owner these reimbursements are too small and will get smaller.     I'm not a greedy business owner.  I run a tight ship and focus unforgivingly on waste elimination.  I expect only a fair return.  Because of my experience working for Eli Lilly and Co. I know how expensive it is to bring a new drug to market and just as important how little it costs, relatively speaking, to manufacture the drug after FDA approval.  A pharmaceutical manufacturer can easily realize an 80% gross margin.    For example, a 90-day supply of Actos cost us approximately $530.00.  We consider ourselves fortunate if a PBM…