How do you manage oncology?

Our discussion today involves managing oncology treatment in a physician's setting. We are discussing the misalignment of physicians and the third party payers. Is it possible to align the goals of the physician and the payer?

Revera Health believes in creating "win-win" situations. This is possible when the health plan or employer creates an environment that rewards physicians for positive behavior and aligns incentives. How is this accomplished? The payer would utilize Revera Health to implement a comprehensive program around oncology. Revera Health would setup a model that would allow the physician to receive reimbursement for his entire drug cost - but not profit. The physician would receive payment for services provided including; administration, clinical oversight, and evaluation & management of the patient. The physician would also be rewarded for participating in the ongoing development of treatment protocols based on evidence-based medicine.

In this model, the physician becomes a partner in care and not a fee-for-service provider. The physician should receive incentives to provide ongoing education on the patients disease state, treatment options, diet, and end-of-life care planning.

The area of oncology is costly for payers - but it can be managed effectively. Medications in the biotech pipeline will be costly - many exceeding 100-200K per year/per patient. Some analyst estimate that the 1 million/per year drug is not far away. Just managing the cost of the drug won't prevent future problems for payers. Payers will need a partner like Revera Health to implement a new system of medical & pharmacy benefit management.

Wal-Mart's PBM Game Plan?

(This article is taken from the Blog: Drug Channels By: Dr. Adam J. Fein. Revera Health's comments are added at the end of this post.)

In January 2008, the Wall Street Journal reported that “Wal-Mart Stores Inc. is stepping into the lucrative pharmacy-benefits arena…” (See Wal-Mart Targets Pharmacy Benefits) Most Wall Street analysts pointed out that the move was not an immediate threat to pharmacy benefits managers (PBMs.) (See Wal-Mart Drug-Benefit Move Isn't Raising Big Alarms.)

In the absence of specific details from Wal-Mart, I’ll use the economics of today’s pharmacy industry to speculate on Wal-Mart’s possible future direction.As I explain in this post, Wal-Mart could shake up the retail pharmacy market by offering a low-cost alternative that links the PBM operation to fulfillment at a Wal-Mart pharmacy. Wal-Mart could easily deliver the $100 million in savings cited by CEO Lee Scott without a direct frontal assault on PBMs such as Express Scripts (ESRX) or Medco Health Solutions (MHS) or the big chain pharmacies such as Walgreens (WAG) or Rite-Aid (RAD). I also see a link to a possible future strategy for CVS Caremark (CVS).

FREEDOM OF PHARMACY CHOICE

Right now, those of us with third-party coverage generally pay an identical co-payment regardless of our pharmacy’s efficiency or cost structure. In my house, we typically choose where to fill a prescription based on whether it’s easier for my wife or me to pick it up.PBMs usually provide a financial incentive to get prescriptions by mail, such as 1 or 2 co-pays for a 90 day script. But there are few, if any, financial incentives for consumers to choose one store-based pharmacy over another. As a result, chains can blithely tell consumers with insurance to ignore the price of their prescriptions, an argument that seems curiously at odds with the trend toward consumer-driven health care decision making. Check out this Walgreens press release, which was issued when Wal-Mart launched its $4 generics program in 2006.

Walgreens (WAG) advises customers to focus on “convenient locations, close-in parking and unique pharmacy services,” but ignore price.

CHOICE IS NOT FREE

As a card-carrying free-market economist, I am now required to inform you that this freedom of choice is not really cost free.Since I have third-party coverage, I have no incentive to shop at the pharmacy with the lowest cost per prescription. All else equal, I’ll always just go where it’s convenient because my co-pay won’t change.However, there are wide variations in costs between pharmacies. As I pointed out in Pharmacy Profits & Part D, the cost of dispensing (COD) can vary wildly between pharmacies. For example, the cost of dispensing per prescription ranged from $9 for the busiest pharmacies to $25 for the lowest volume pharmacies. (See page 18 of the complete Cost of Dispensing (COD) study.).Yes, you read correctly – the variance in cost was $16 per prescription.This variation is not surprising (at least to an economist). Put aside the cost of the drug (ingredient cost) for a minute and just think about the operating costs. Pharmacies have high fixed costs relative to the incremental (marginal) costs of dispensing because certain factors are required regardless of volume – a pharmacy license, pharmacists, insurance, rent, etc. In other words, filling the first prescription is very expensive, while filling the second prescription is not. A pharmacy that fills more prescriptions will see average cost per prescription go down, even if marginal cost remains constant.Basically, both the marginal cost of dispensing and the ingredient costs were relatively low.

WAL-MART'S GAME PLAN?

I don’t think that Wal-Mart will go after the mainstream PBM business. Instead, they could offer a low-cost alternative that links the PBM operations to fulfillment at a Wal-Mart pharmacy. Such an approach would present a familiar trade-off for the employer:
Give your beneficiaries freedom of pharmacy choice and pay $X.

Restrict choice to our more efficient (Wal-Mart) pharmacies and pay less than $X.Note that the price of drugs does not have to change to make the math work here! Wal-Mart’s plan would only need to migrate a small percentage of scripts from pharmacies with higher CODs to Wal-Mart to reach Mr. Scott’s $100 million figure.Here’s some illustrative math:

Store-based (non-mail order) retail pharmacies – chains, independents, supermarkets, and mass merchants -- filled about 3.2 billion scripts in 2006.

Aggregate Gross Profits on Prescriptions (Revenues minus Costs of Goods) at store-based pharmacies were about $47 billion in 2006. Thus, Average Gross Per Script in 2006 ~ $14.30.
Let’s say Wal-Mart uses its PBM to redirect 1 percent of these prescriptions (32 million) to its stores. That’s $455.4 million in gross profits ($14.30 x 32 million).

If Wal-Mart is willing to accept $11.00 in gross profit per script, then total savings to the employer are $105 million.Wal-Mart can make this deal because their marginal COD is lower than the average pharmacy. For example, I showed how Wal-Mart makes money from the $4 generic program in Sloppy reporting about Wal-Mart (Dec. 2006) and Wal-Mart's Gain is not Walgreen's Pain (Oct. 2007). I also presume that there will be some processing costs saved because everything is staying within the WMT family.Now here’s the real question: Will CVS Caremark (CVS) try to roll out something similar to link PBMs and retail fulfillment?

REVERA HEALTH'S RESPONSE: Wal-Mart can make a difference!

While we agree with Dr. Fein's post, we believe that Wal-Mart can truly impact the role of the "traditional" PBM. While the role of the PBM isn't just a supply chain play - it does involve the management of data and information. Wal-Mart has demonstrated its ability to manage information and use it for positive impact on the business. So, can Wal-Mart change the face of PBMS? Yes, and we believe that it has to do with channel control.

Wal-Mart controls mail-order, retail, and specialty pharmacy. With that being said, having all of those channels isn't a new phenomenon. Medco, Express Scripts, and Caremark have access to all of those channels. (Caremark/CVS would be similar to Wal-Mart in structure). Wal-Mart is in the unique position of having an integrated offering to leverage for self-funded employers. Wal-Mart can share cost savings from every channel with the employer. Wal-Mart could benefit from a value proposition that aligns the goals of the self-funded employer with the goal of Wal-Mart. Wal-Mart would not be looking to make money from the traditional PBM role (ie: prior authorization charges, claims processing, etc.), but instead would derive revenue from cost savings.

Lawmakers move to punish doctors who don't use cost-saving electronic prescribing

A broad coalition of corporations, consumer groups and pharmaceutical providers moved closer this week to compelling millions of doctors to file prescriptions electronically.
Electronic prescription supporters as disparate as AARP and AT&T have touted it as an easy, effective way to avoid deadly medication errors and save health care providers billions, while doctors have been slow to embrace what many of them see as costly software to install and maintain.

But under a proposal Senate lawmakers outlined Monday, the price of sticking to pen and paper could be equally painful.

Doctors in the government's Medicare program would receive bonuses when they use online prescribing software, beginning with 2 percent increases next year. Those who don't adopt the technology by 2011 would see their pay cut one percent, growing to two percent by 2013.
With 86 percent of U.S. doctors participating in Medicare, pressure from the government program could go a long way in helping doctors kick their pad habit.

Senate Finance Committee Chairman Max Baucus is working with other senators to pass a bill controlling Medicare spending for the second half of the year. The Montana Democrat is expected to attach the electronic prescribing language to the legislation.

Mark Merritt, president of the Pharmaceutical Care Management Association, said the physician penalties will likely prove more important than the rewards.

"Incentives aren't enough," Merritt said. "You can lead a horse to water but you can't make it drink."

One industry decidedly ready for physicians to take a bigger gulp is that of pharmacy benefit managers, like MedcoHealth Solutions Inc., Express Scripts Inc. and other members of Merritt's trade group.

The software used for electronic prescribing allows doctors to see detailed lists of medication options, including cheaper, generic drugs. When doctors switch to less-expensive medications, patients aren't the only ones who save. Pharmacy-benefit managers spend less too.
Generic drug companies, like Barr Pharmaceuticals Inc., also stand to benefit as doctors increasingly switch patients from branded drugs to their cheaper versions. And prescribing software makers like Allscripts Healthcare Solutions Inc. would also see higher sales. The company's stock rose 55 cents, or 4.6 percent, to $12.79 in Tuesday trading.

Improving the nation's health information technology has become a rallying cry in Washington and on the campaign trail in recent years, but with few concrete results to show for all the rhetoric. Electronic prescribing may be able to break that trend thanks to its broad appeal within the Bush administration, Democrats in Congress and the private sector.

"E-prescribing remains the only health IT proposal that can generate short term savings for the federal government, and as a result is the only one we think can get passed for the foreseeable future," wrote Lehman Brothers analyst Tony Clapsis, in a recent note to investors.
Congress is expected to vote on the Medicare bill that will likely include electronic prescribing provisions before July 1.

While Revera Health support the e-prescribing effort, it cost savings will be limited. The "savings" that would be captured has to do with savings achieved under formulary managment. While this is a positive step, it does not fully address utilization or formulary management for drugs under the medical benefit.

Also, having the physician bear the burden of fixing the fractured health care system - hasn't worked yet!

Specialty Trend Keeps Growing ... and Growing!

Specialty drugs are rapidly consuming an ever-greater portion of what Americans spend every year for prescription drugs. From a plan sponsor's perspective, these highly expensive drugs, which remain poorly controlled, pose a growing threat. Last year's specialty spend was $59 billion — that's 21% of the country's total pharmaceutical spend. That percentage will reach 27% by 2011, with specialty drugs costing $98 billion, compared with $267 billion for conventional drugs.

Cost management begins with understanding the drivers of specialty trend. What Drives the Cost of Specialty Drugs? The average specialty drug costs $1,600 for a 30-day supply. Although specialty trend dropped from 20% to 14% in 2007, per-member-per-year costs still ran $84.73. Specialty drugs have certain characteristics — frequent dosing adjustments and intensive clinical monitoring, for instance — that drive up their cost. In addition, distribution is commonly limited or exclusive to one company, and most specialty drugs require specialized handling and administration. Initially used mostly for complex conditions, specialty drugs are now prescribed for more common ailments, such as asthma and psoriasis. In addition, growing direct-to-consumer advertising has spurred demand for specialty drugs. If we consider specialty drugs as a combined therapy class, it's now outpaced anticholesterol medications, which ranked as the No. 1 class in 2006. The primary reason for the growth in specialty-drug spend between 2006 and 2007 was the increased utilization of these expensive drugs.

Ninety percent of the money spent on specialty medications goes to treat seven conditions:

Cancer (19.7% trend)
Inflammatory conditions, including rheumatoid arthritis and other conditions (18.1% trend)
Multiple sclerosis (16% trend)
Conditions treated with anticoagulants (17.3% trend)
Blood cell deficiency (-9.7% trend)
Growth deficiency (6.3% trend)
Hepatitis C (0.6% trend)

While all of this being said, how do you tackle this trend? Revera Health has developed a suite of integrated solutions that address the areas impacted by this increasing trend. Revera Health can develop customized programs for an self funded group or health plan that preserves patient choice, ensures appropriate care, and delivers measurable cost savings.

Revera Health is inventing an industry. Revera Health's solutions integrate medical and pharmacy benefits under a single platform; thus providing real time reporting and medical management.

To learn more, visit www.reverahealth.com or contact us at future@reverahealth.com

We look forward to providing valuable insight to our clients and prospective clients. We will continue to post information on the topics of specialty pharmacy, medical benefits, pbm, pharmacy benefits, biotech pipeline, alternative sites 0f care, and more.