Rising pharmacy costs point to the need for hospice outcomes
More revenues needed to cover costs
Much has been said about the rising cost of pharmaceuticals. Recently, Families USA, a national watchdog group, made headlines by releasing the results of its study that showed the price of drugs used primarily to treat the elderly has outpaced inflation. HMOs have cited rising drug costs to justify increasing premiums. Hospices are not immune to this growing trend and may be allowing the trend to sneak up on them.
"The hospice industry is just a microcosm of what is going on throughout the health care industry," says Calvin Knowlton, MDiv, PhD, chief executive officer of Hospice Pharmacia, a Philadelphia-based consulting firm. "The problem for hospices is that they can’t make up the additional expense with additional revenue."
Depending on the source of information, drug costs are increasing 15% to 20% per year. Knowlton estimates hospice drug costs are rising 18.3% per year. Because drug costs make up a significant portion of a hospice’s direct costs, he says those expenses will likely double in three to five years if nothing is done.
Experts are blaming a combination of factors for the rising cost of drugs: higher drug utilization, inappropriate drug utilization, and an increasingly aging population. Increases are not limited to just new drugs hitting the market, many of which pharmaceutical companies have spent millions on. Generic drugs, traditionally seen as less-expensive alternatives to brand name products, have doubled, sometimes tripled, in price.
So what does this all mean for hospices? Because drugs — specifically pain medications — play such a large part in providing care to dying patients, the cost of doing business is steadily increasing. Coupled with other detrimental trends such as short length of stays, hospices not only face the prospect of rising costs, but an inability to make up for the additional costs by increasing revenue.
Though they should keep their eyes open to increasing pharmacy costs, hospice administrators have a number of options. They could choose to do nothing in hopes of federal or state intervention. Perhaps the new cost report will provide Medicare the evidence it needs to begin adjusting per diem rates, which would account for the increase in pharmacy costs.
Don’t count on it, says Knowlton. Medicare has a poor track record of giving back to the provider. Even if there is government relief down the road that calls for rate increases to accommodate higher drug costs, hospices would likely be paid for the cost of the drug only and not the accompanying pharmacy charge, typically 15% to 20% of the cost of the drug. So while the increase in price may be subsidized by a higher reimbursement rate, hospices still would have to absorb the increase in pharmacy charges.
And that is a best-case scenario for the wait-and-see hospice. Time is still its next-biggest enemy, second only to the steady cost increases themselves. Because pharmacy costs make up a large portion of a hospice’s direct costs, Knowlton estimates that those costs will double in three to five years if the problem is left untreated. The first cost report is yet to be submitted to a fiscal intermediary, and it will take years before the Health Care Financing Administration (HCFA) gathers enough data to make any rate decisions.
Administrators don’t have the luxury of taking a wait-and-see attitude. Rather, they should be looking inward to find ways to address the problem. "They need to be aware of the problem and address it as part of their budgeting process," Knowlton says. "They need to optimize their use of pharmacotherapy so that it is cost effective."
Evidence-based formulary
Yes, Knowlton is talking about learning to manage costs. It’s not a favorite topic among hospices that adhere to a philosophy that quality patient care should be provided whatever the cost. It also means not only measuring clinical outcomes — the National Hospice Organization (NHO) is involved in a project that is advancing clinical and grief outcomes — but financial outcomes as well.
What he isn’t advocating is making formulary decisions based solely on cost. The answer, says Knowlton, rests with hospices’ ability to improve the efficiency of their formularies. "They need to take a page out of managed care and what hospitals have done."
That page is from the book of using an evidence-based formulary, one that focuses on the cost-efficient use of drugs. Unfortunately, outcomes measurement is a new frontier for hospices, and devising a system that would link clinical outcomes with financial outcomes is tantamount to learning how to run before learning how to walk.
Hospices are keenly aware that they have ongoing cost challenges, but many are willing to accept that these challenges are the cost of helping patients and their families during the most difficult period of their lives, says Martha Tecca, MBA. Tecca is an outcomes expert and founder of Healthcare Management Council, a Needham, MA-based firm that brings organizations together for the purpose of outcomes measurement. (See related story on page 3.)
"There’s a lot of acceptance for the way things are and a willingness to just react to challenges that come up," Tecca says. "You just can’t do that anymore. You have to plan for the future."
To address their ongoing cost challenges, Tecca says hospices have three key tasks:
- manage predictable costs;
- influence revenue by pressing the length of stay and reimbursement discussions, and continue to try to influence payers and referral sources;
- measure costs and outcomes to determine cost effectiveness. The clinical outcomes of drugs should be tracked to determine the most appropriate use to eliminate wasteful and ineffective usage. That is directly related to outcomes measurement and suggests comparing clinical outcomes with financial outcomes.
The underlying theme here is that hospices can get to the heart of which drugs and doses are most effective — relief of pain to an acceptable level in the shortest period of time. It would eliminate the majority of guesswork, variance in care, and reliance on anecdotal experience when treating pain. The combination of clinical outcomes and financial outcomes will point the way and lead to the creation of clinical pathways similar to those used in hospitals and by managed care organizations.
The problem is outcomes measurement in the hospice industry is in its infancy and linking clinical data with financial data seems far off for the individual hospice provider.
The NHO realizes that outcomes measurement will likely become part of the hospices everyday life. With the advent of the Outcomes Assessment Information Set — an outcomes measurement initiative being imposed on home care providers by HCFA — there is reason to believe something similar is down the road for hospices. The NHO is collaborating with the National Hospice Work Group to develop key measures of hospice care. The NHO/National Hospice Work Group Out come Forum represents an industry foray into the realm of outcomes measurement. Fourteen hospices have begun the second round of data coll ection that will eventually be compiled into a report, "A Pathway for Patients and Families Facing Terminal Illness."
The core outcomes indicators are:
- comfortable dying;
- self-determined life closure;
- safe dying;
- effective grieving.
The core outcomes indicators represent a simple set of measures intended to show the value of hospice care to referral sources and the public. Up until now, the value of hospice has been communicated without the luxury of data to back up assertions of hospice’s value to the terminally ill patient. The NHO and Hospice Work Group say they hope their initiative will elevate the dialogue regarding hospice care to a level above theory and anecdotal evidence.
While the impact of the NHO’s outcomes initiatives have far-flung applications, such as providing much needed data to help solve length of stay and reimbursement problems and provide industrywide benchmarks, they only provide an example of how outcomes can benefit hospices.
In order to solve financial challenges, including rising pharmacy costs, individual hospices need to begin collecting their own data, say both Knowlton and Tecca. And as administrators begin to look at both their clinical outcomes and relate them to their costs, they will be able to identify characteristics and clinical paths that are likely to result in positive outcomes as well as being cost-effective.
Hospices that realize the need to collect their own clinical and financial data will be happy to realize that much of the data they need, they are already gathering in one form or another. For example, the new cost report requires hospices to gather cost information about drugs and biologicals.
"Right now, they have the cost data to look at pharmacy cost," says Tecca, "They just don’t know how to use it. They are predisposed to benchmarking, but they are not predisposed measuring things in this industry."
Collecting data on pharmacy costs might not be the best area for hospices to start, Tecca says. Some hospices, for example, may be part of a large purchasing group that has been able to keep cost increases to a minimum. If that were the case, their data collection efforts would be more useful if placed in another area. "Where you start is a strategic choice," she says.
One of the limitations, however, of collecting and measuring outcomes data during a time when the discipline is still being developed in the industry is the absence of reliable comparable data. In essence, hospices will be analyzing their own data in a vacuum. There is no industrywide, diagnosis-specific data to compare to individual figures, and it will take years before a hospice can collect enough data that can be considered statistically significant. Still, Tecca says, if hospices aren’t collecting clinical and financial data and looking at outcomes, they should be.
"Outcomes is not a panacea, but it’s a start," says Knowlton. "Either move toward an evidenced-based formulary or figure out alternative sources of revenue."
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