Threat of pharmacy payment cuts leaves capitated groups scrambling
Private payers follow Medicare’s lead
(Editor’s note: Readers with capitated contracts tell us pharmacy costs top the list of key issues they are concerned about in 1998. Physicians essentially accepted a 5% reduction in drug reimbursements for Medicare patients in 1997, and further cuts are likely for 1999. So what’s a practice to do? We’ve provided a perspective on this issue, along with information on how some practices are counteracting the hits they are taking in capitated drug costs.)
If you think pharmacy capitation is tough, it just got tougher or at least, its prospects just got bleaker. Government, private-sector employers, and doctors are frustrated with high drug prices and arcane, moving-target price lists. Medicare is aiming its cost-cutting cannons directly at the issue of rising drug costs, and employers are close behind.
Much like the darting, blinking targets of light in a video game, lists of drug prices and discounts move rapidly, come and go, change, and essentially offer little help in arriving at fair drug prices, many health care experts contend. (See related story in Physician’s Managed Care Report, November 1997, p. 147.) As a result, high prices are gobbling up much-needed dollars and risking solvency for doctors in pharmacy capitation contracts.
"Pharmacy capitation has resulted in extraordinary losses," says James Selevan, MD, chief information officer at Monarch Health Care in Mission Viejo, CA. "We’re losing a large sum of money."
And the issue is far from resolved. Major Medicare reductions followed by private-payer cutbacks are a real danger for 1999. This bodes ill for practices with capitated pharmacy contracts. The already intense challenge in pharmacy capitation would be increased via lower per member per month (PMPM) drug allocations, experts warn.
If recent studies influence Congress to vastly reduce payments for drugs (they already have cut back by 5% for 1997), payers would likely follow suit in both their fee-for-service and capitation contracts. After all, payers rely on fee-for-service payment calculations as a basis for lowering PMPM payments.
In December, three hard-hitting studies came out with both arms swinging, charging that drug costs are out of control. Here are some highlights:
• Medicare officials say they overpaid by $2 billion dollars for 22 higher-volume drugs in 1995 and 1996. (See chart on p. 19 for a list of these drugs and a comparison between Medicare reimbursement rates and wholesale prices.)
• Employers say their average per-employee cost of drug claims in 1997 rose to $430 annually, a 17.5% increase over 1996 costs.
• 54% of employers say their drug costs are increasing faster than their overall medical costs.
The solution at one California multispecialty group: more aggressive pharmacy intervention. The Centre for Health Care Medical Associates in San Diego hopes to open an on-site pharmacy, staffed by an interventional pharmacist, in its facility this spring, says executive director Karen Buck, FACMPE.
Once a patient presents a prescription at the pharmacy, the pharmacist will review it for cost-effectiveness, she says. If the patient’s treating physician has not prescribed a generic drug, the pharmacist will contact him or her to request a substitute. Pharmacy staff also will conduct outreach efforts to patients due for a refill who have not yet come in. Noncom pli ance with prescription orders can ultimately drive up long-term health care costs if the patient has to be hospitalized later, Buck points out.
But despite the current angst over drug costs, physicians are warning strongly against massive payer cutbacks in pharmacy payments. At the same time, emerging information technology may well change the cost picture soon, some experts predict. (See related story on electronic medical records and pharmacy capitation, p. 20.)
"I would be very nervous and begin to sweat if payments were cut back, especially without any attention given to why drug costs are up," says David Jarry, MD, medical director of pharmacy for the Fallon Clinic in Worcester, MA. Costs could be higher due to many factors improved clinical outcomes, or more efforts toward prevention, thus reducing overall cost, he suggests.
"Where is the information that my population should be restricted because as a whole too much money was spent?" Jarry says. "When I’m in my office with a patient, I’m dealing with a population of one. Do I tell that patient Medicare is paying too much for their drugs and we’ll have to cut back?"
A similar view is held by Joseph Bailes, MD, an oncologist in Dallas and a trustee for the American Society for Clinical Oncologists in Alexandria, VA. Bailes opposes the immediate cuts recommended by Medicare officials, largely because many CPT codes that cluster around the use of the drugs singled out by Medicare are underpaid for in other areas, he argues. "It isn’t appropriate to single one out when chemotherapy is under-reimbursed," he says. Yet Medicare cites staggering expenses, as do many doctors dealing with folding in pharmacy costs in a capitated contract.
Outcomes often improve slowly
Keeping close tabs on the bottom line is undoubtedly vital, notes Jarry. At the same time, moves to cut drug costs without asking crucial questions about the trend can be hazardous, he argues. It’s a classic conflict between cost and patient outcomes. Line-item focus has to consider costs to pay the bills; an outcomes focus has to look at whether patient care has improved and if overall costs have changed. Often, measuring outcomes takes longer than measuring growth in costs, he points out.
"Say the costs of an anti-depressant drug go up," Jarry says. There may be some high initial costs, but the total costs of patient care may go down because of fewer office visits for psychiatric support. That’s a good thing.
"The statistician says, Let’s make it a two-year study.’ The line-item person has a heart attack and says, We gotta pay our bills. We can’t wait.’" For some drugs, outcomes can be measured rather quickly; for others, it can take 20 years or more, Jarry points out.
Both Bailes and Jarry dispute the government’s claim that providers are profiting from overpriced drugs. "It’s a question of total reimbursement," Bailes says, with focus on his field of oncology. When you look at the collective costs of drugs, reimbursements for office visits, and reimbursement for chemotherapy procedures, many oncologists end up with very little if any profit margin for treating cancer patients.
"There’s no telling when, if ever, chemotherapy codes will be increased so they’re reimbursed fairly. Office codes, chemo codes, and drug codes all three go together in many patients," Bailes says. "To single one out isn’t appropriate."
"Our primary concern is quality care," notes Jarry. Making decisions too quickly about costs before they are completely understood could hurt that effort."
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