5 Tips for Self-Funding Under Obamacare June 27, 2013Posted by medvision in Uncategorized.
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Want to know how employers can survive and thrive under Obamacare? See my latest article published by Employee Benefits News:
Five health planning essentials for self-funding under Obamacare
By Daniel K. Ross, President of Med-Vision & Med-View
The Affordable Care Act is prompting many employers to consider moving from fully insured plans to self-funding. The mandatory benefit structures and new taxes, added to an excess of 906 pages of mounting regulations, have sounded an alarm for employers to wake up to a changing health care landscape….
How do wellness programs save lives? May 9, 2013Posted by medvision in Cancer Care, Employee Wellness, health data, Insurance Plans, Risk Management, Uncategorized.
Tags: cancer care, employee, health, healthcare, school district, screenings, wellness, wellness programs
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Employee wellness programs and screenings can provide early detection and better outcomes for patients. Just watch this cancer survival story of a teacher working for our client Manatee County School District.
Discounts and Cost Shifting: Today’s challenge for Self-funded health-plan managers December 11, 2012Posted by medvision in Chronic Disease, health data, Healthcare Costs, Healthcare Reform, Insurance Plans, Risk Management, Rx Costs, Uncategorized.
Tags: billing, health costs, health data, healthcare, healthcare reform, hospital billing, hospital contracts, in-patient procedures, insurance, MCO, plan managers, risk management, self-funded
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In my experience in health plan risk management and benefits planning, nearly all large self-funded plans don’t have dollar shortages. They have allocation problems. In today’s healthcare environment, managers need to know their “real” problems and their vast improvement opportunities. Independent, member-centric, HIPAA-compliant data is not a luxury — it’s the “oxygen” necessary to ensure plan survival in today’s economic climate.
If ever a cat and mouse game existed, it could be best illustrated by today’s billing practices confronting self-funded plan managers.
Years ago, consultants badgered insurance companies and providers over their in-hospital daily rates. Hospitals quickly realized many of the in-patient procedures could be performed in an outpatient setting and, in turn, made up their inpatient financial losses by loading outpatient billing rates.
Consultants, MCO’s and plan managers maintain an on-going tit-for-tat game in the provider discount arena. Basically, no consultant can definitively analyze a MCO’s overall discount because they cannot access hospital contracts, and hospital charges make up 60-70% of annual plan expenses. Given this lack of hospital contract knowledge, they rank health plans by a stated percent discount off of billed charges. Providers have the ability to increase their billing, charge master, thus, the discount off billed charges is less relevant.
A more relevant measurement is the amount self-funded employer plans pay as a percentage of Medicare provider reimbursements, for given geographic areas. In my consulting practice, we employ independent, deep-mining healthcare software to analyze the clinical and financial status of the plan’s performance. Recently, with the advent of the national healthcare reform law, PPACA, we discovered certain data elements being charged in manners never seen.
For instance, most plan sponsors today see aggregate annual outpatient claims almost equaling annual inpatient claims. Outpatient procedures are when the patient comes to the facility, usually in the morning, receives a medical procedure, and goes home in the afternoon. By definition, outpatient procedures cannot be of a very serious nature, although the patient can have serious disease. In contrast, inpatient procedures require 24-hour care by physicians and nurses and can last weeks or months. As an example, some patients with heart disease are well enough to undergo heart catheterization/angioplasty in the outpatient setting.
Let’s get to the billing issue now. On average across America, Medicare reimburses hospitals, in the outpatient setting, for angioplasty an amount averaging $4,000. The physician, interventional cardiologist, receives approximately $800. But I’m seeing multiple instances in which our self-funded plan sponsors are paying in the neighborhood of $40,000 plus or minus. Rough arithmetic would show the $40,000 payment to be 800% to 900% above the average annual Medicare reimbursement. I’m sure this is not a shock to many plan managers as everyone knows the commercial side of healthcare helps finance shortages from Medicare, Medicaid, and unreimbursed indigent care. Employer plan sponsors can do much better than this ratio by direct contracting with best-of-class interventional cardiac providers.
Now for the jaw-dropping part: If a consultant requests the plan sponsor’s average cost for angioplasty, he or she would probably supply a list of codes aligned to angioplasty, outpatient, and wait for the answer. What we are discovering is that the paid billing indicates the codes aligned with angioplasty are populated by very small dollar amounts; however, on the date of service, a large dollar billing of $40,000 is described as a low-cost medical service, sterile IV solutions (saline), listed under the procedure description, while the actual descriptive procedure, CPT code, is listed under a blinded aggregate hospital revenue code. This produces a scenario in which normal queries would not identify the large $40,000 amount paid and requires a detailed, line-by-line billing to investigate the appropriateness of the charge.
How prevalent is this practice? In one instance, medical claim dollars listed under sterile IV solutions, pharmacy incidental to radiology, generic pharmacy, and non-assigned pharmacy equaled $25 million over 24 months.
Without further investigation, it is virtually impossible to ascertain if these dollars are being spent correctly under contracted arrangements. At best, it represents new escalations in the game of hide-and-seek.
And the real concern lies in the subject of cost shifting. Ponder this question: Not counting physician office visits, what percentage increase is fair in addition to the amount providers receive from Medicare reimbursements? Remember that with high-cost healthcare procedures your plan is reimbursing providers much more that Medicare for the exact same treatments/procedures. It’s a tough question. Although if we are to maintain employer-sponsored healthcare, it must be addressed. My guess, 200-300% is fair. And 800-1000% is unreasonable.
This issue is important as commercial plans cannot meet the financial shortages coming in the future. Another outpatient assumedly situation showed a payment of $78,000 to a hospital assumedly all under contracted rates, in network. If the patient spent eight hours at the facility, employer’s bill equaled $9,750 per hour. This seems expensive.
Another plan management “treat” is represented PBM vendors charging plans 1000%+ more for common generic drugs than members can pay at retailers, Costco, Target, and Walmart. Yes, employer plans save a few dollars from generics, but the lion’s share of savings are gobbled up by PBMs. Moral of this story: Study your contracts carefully and know that it could be in your organization’s best interest to seek support from a health-plan risk management firm relying on independent health & pharmacy data software.
Blind Faith: Self-Funded Health Plan Management and Hospital Billings November 16, 2012Posted by medvision in Chronic Disease, Employee Wellness, health data, Healthcare Costs, Healthcare Reform, Insurance Plans, Risk Management, Rx Costs, Uncategorized.
Tags: health data, health expenses, health plans, healthcare costs, high-deductible, plan management, self-funded
Blind Faith: Self-Funded Health Plan Management and Hospital Billings
Many things concerning our current healthcare situation leave me in amazement. For example, today an article featured in “The Hill” highlighted a 4-5% decrease in healthcare inflation, which is a positive sounding reduction. http://tinyurl.com/czmmdz4 The national consultant attributed this to America’s adoption of high deductible health plan programs. This would seem logical if our national problems were based upon members utilizing too many $100 doctor visits. In other words, make patients 100% responsible for funding doctor visits, prescription medications and other high-value, low-cost health services. This sounds terrific until one discovers an excess of 75% of our national healthcare expenditures go to mitigate/control existing chronic disease. So is the logic “prevent the low-cost services to inflate high cost chronic disease services”?
Unfortunately, the above can only make sense to plan managers who have no independent, actionable data. One simple exhibit, the expense distribution analysis, would show plan managers that a very small number of their members account for huge expenditures of claim dollars. Let’s assume a plan provides health benefits for 10,000 members (employees, spouses and children). If together the plan sustains $36 million in annual claims, a typical report would note a per-member-per-year, PMPY, expenses equaling $3600. If the real expense distribution analysis was available, one would see:
-Top 1% (100 members) incur annual average claims of $90,000 each;
-Next 4% (400 members) incur $35,000 each;
-Next 25% (2500 members) incur $3000 each;
-Next 20% (2000 members) incur $1500 each; and
-Bottom 50% (5000 members) incur $500 each.
Notice the above does not include member paid coinsurance or monthly payroll deductions for coverage. Now, the plan manager is advised to increase the deductible to $2000 per member before any plan benefits are payable. Why? Give members skin in the game! Immediately, it’s easy to see 50% are completely disenfranchised from any benefit payable. Does it make sense for the plan sponsor to eliminate benefits payable for the bottom 50% to 60%? How much impact will the new $2,000 deductible have on the top 1% members spending an average of $90,000 per year?
Remember that very sick members are not consumers in the sense of purchasing an automobile. They are fighting for their lives. The bottom 50% of members are not consumers either, as the vast majority are not in life or death disease struggles. Due to the 100% expense, these 50% are foregoing necessary wellness visits and other necessary disease management services. From a risk management standpoint, this plan design doesn’t compute. I think this builds a speed lane into the top 5%/1%!
The centerpiece of my consulting practice at Med-Vision is actionable, independent, HIPAA compliant, patient centric health plan data. Recently, while digging through a client’s outpatient hospital data, I noticed a $7 million paid run of charges recorded under revenue codes entitled — other pharmacy IV solutions and pharmacy incidental to radiology. These have no detail, no backup, and will require the administrator to request itemized billings to investigate. This could be totally legitimate, but I find it amazing clients are scouring the lunch tabs of their sales force and increasing the deductible for needed member preventative health services, while blindly paying $7 million for possible saline injections. If this isn’t a home run example of the necessity of actionable data, nothing else is.
I often joke that many large self-funded health plans could be purchasing someone a brand-new Mercedes- Benz, S-500, each month with no notice. It’s time for employers to take notice, evaluate their plans, implement solutions, and gain control of their healthcare costs. What’s more, with the right plan design and data analytics, costs can be cut while simultaneously enhancing benefits and improving the quality of care.
A Dangerous Exchange in Healthcare October 3, 2012Posted by medvision in Uncategorized.
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Why private insurance exchanges utilizing an employer-defined contribution will NOT lower healthcare costs nor promote health.
Recently, a big announcement concerning a private insurance exchange was made. AonHewitt’s exchange will feature five different national managed care organizations with multiple healthcare choices for employees of organizations sponsoring this plan. A full story regarding this exchange is at Modern Healthcare’s website: http://tinyurl.com/97bjqef.
Notably, Orlando-based Darden Restaurants and Sears Holding Company are among the first large employers to “jump in.” From a political perspective, the right seems very happy, as they believe a prior exchange is far superior to the ones mandated in 2014 under ObamaCare. The left, however, is wishing they’d waited until 2014.
I’m fairly confident this model will not work, as it will increase member population care fragmentation, eliminate workplace wellness initiatives, accelerate chronic disease, and increase cost while sequentially lowering employee productivity. Let me illustrate:
(1) Direction in darkness: A total lack of clear information concerning pricing, quality and best health outcomes is not choice – it’s chaos! Just look at your own health plan’s website and go to the tool purported to provide price transparency and quality. If you’re not versed in insurance terminology and coding, then it’s going to be challenging for you to navigate.
For example, imagine you’ve just returned from the local hospital emergency department with a torn Achilles tendon. Your leg is immobilized, taped and your instructions are to find an orthopedic surgeon to repair your injury in the outpatient surgery setting. Which CPT codes will describe the procedures necessary to repair your ankle? How do you identify the surgeon who has performed the most procedures successfully? Okay, now you cave in and call your insurance plan’s nurse call line. Maybe this is too serious a condition so substitute anything else that comes to mind. This is complex stuff.
(2) Risks in the workplace: Let’s consider the restaurant worksite setting. Most of individuals covered will be younger and likely work 8 to 10 hours on their feet per day. In turn, musculoskeletal issues, specifically back and neck pain, will be a large percentage of both healthcare costs and workers’ compensation costs. Younger people will also make less money and will likely be attracted to the lowest premium plans, probably high-deductible plan designs. Back pain literally has hundreds of various treatment options including fusion disc surgery, minimally invasive surgery, MRI plus physical therapy, chiropractic and multiple other options including combinations of all the above. Again, too many choices in the darkness.
(3) Loss of fellowship: How do teams accomplish goals in the work setting? One thing definite is they know their contribution’s impact to the attainment of a common goal. One of the reasons successful wellness programs have such an impact on member health is members/employees look out and assist each other. Now, under this private exchange program, no two employees have the same benefits package. Back to the restaurant work setting, how would the team perform if they all could come to work at different times regardless of guest volume? What if they can pick their own days off without any coordination from management?
With this in mind, how does it seem logical to give exactly the same contribution to members possibly suffering from multiple stages of differing diseases or conditions? Who will pay when a diabetic fails to take needed medication and ends up in the intensive care unit suffering from a diabetic coma? One may think if the product is fully-insured the insurance company pays; however, large claims always seem to come back in higher premiums at renewal.
Pitfalls of exchanges
Exchanges are essentially telling employers to “wash your hands of the benefits administration, member communications, contribute “X” dollars, and allow your employees to make their own choices.” Sorry, as they say in the south, “this dog won’t hunt.” The idea of sick/hurt members being true consumers with the same behaviors exhibited while purchasing a car or a computer is a fallacy. Patients enter a complex marketplace often in a very involuntary manner. Financial and personal costs are higher in healthcare, with greater risks than in any other consumer marketplace. (See this article discussing Why Patients are Not Consumers: http://tinyurl.com/3fk5w5q).
In sum, it’s easy to understand attractiveness to employers of dumping responsibility pertaining to their employer sponsored health plans. But employee health is a corporate asset necessary to provide the best service to customers. When employers stop caring about the health and wellness of employees – all sides lose. Employees lose the time and opportunity to improve their health and business loses customer focus and competitive advantage.
Health Plan Fiduciary Duty: a Foreign Concept? September 14, 2012Posted by medvision in Uncategorized.
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Recently, I learned of an interesting self-funded health plan design adopted by a midsized multispecialty physician group (600 employees). Very simply the plan pays nothing until the covered employee incurs $10,000 in a calendar year. I guess their consultant and HR team assumed the doctors earning $225K will provide care to each other under professional courtesy and perhaps have the plan respond for serious events?
This is probably okay for doctors; however, for every doctor employed, five plus non-physicians are covered. How does a $10,000 deductible impact the office receptionist earning $500 per week? For the 500 non-physician employees, I argue that a plan not responding until the sum of $10,000 is spent, ultimately, will create new disease and magnify the severity of existing disease. How could a fiduciary decide to provide no benefits until an employee’s health status requires $10K out-of-pocket?
Today, our press recounts dozens of instances concerning our national quagmire concerning medical price and health outcomes transparency. Only in healthcare could poor-quality cost much more than high quality (read this eye-opening report: http://tinyurl.com/9c4488c).
During client meetings over the years, I’m always surprised when a benefits VP recounts reoccurring instances of poor quality being received by members at a certain hospital or provider. How many times have we heard: “I’d never go to ABC Hospital because it’s under-staffed. If you don’t have a family member stay with you, 24/7, you are in trouble.” I find myself thinking to myself: “What?!?” So your benefits plan is paying this hospital $4 million annually, and you think the quality stinks. Why aren’t you screaming at the administrator, MCO, network manager? Why aren’t you warning members?
Why is the concept of plan managers acting in a fiduciary manner so foreign in healthcare? Here’s a brief explanation of fiduciary responsibility from the DOL: http://tinyurl.com/2b7r8qd.
Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a group health plan and their beneficiaries. These responsibilities include:
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
- Carrying out their duties prudently;
- Following the plan documents (unless inconsistent with ERISA);
- Holding plan assets (if the plan has any) in trust; and
- Paying only reasonable plan expenses.
Yes, fiduciary responsibility under the DOL, other than stealing plan dollars, is largely paper mache, toothless. If a “big five” consultant advises a $10K deductible is fine for hourly workers, and it’s administered by a big TPA/MCO, the plan sponsor is in clear air.
Ominous threat to employer sponsored healthcare July 25, 2012Posted by medvision in Chronic Disease, Employee Wellness, health data, Healthcare Costs, Healthcare Reform, Insurance Plans, Risk Management, Rx Costs, Uncategorized.
Tags: employee wellness, employer sponsored, health costs, health data, healthcare, healthcare data analytics, healthcare reform, insurance
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If your job involves managing employer sponsored health plans, on behalf of employers, there’s an article out (http://tinyurl.com/d836mol) that says the following:
One in 10 employers plan to drop health benefits.
I hope this is a huge wake-up call for employers. Over the past 10 years, I’ve pounded the pavement trying to explain the necessity for plan executives to utilize actionable, independent, member-centric data to manage the financial and clinical aspects of their health plans. Some employers have adopted this model and, as a result, their trend/health inflation has become virtually nonexistent over the past several years. Just look at Med-Vision’s news page for examples. Many others, however, have declined and are flying, virtually blind.
Let’s think about the impending threat to our current system of healthcare delivered at work. First, which types of employer plans are at the highest risk? To make my point, I’m borrowing from the comedic styling of Georgian funnyman, Jeff Foxworthy:
(1) If you report to an elected board, commission, mayor or any other type of politician who grovels every few years to be reelected, you might have a problem
(2) If your annual per employee plan costs are $8,000 plus, versus the penalty of $2000 PEPY to drop coverage, you might have a problem
(3) If your plan design pays claims for an unlimited maximum, while you attempt to save money by preventing care during the first $10,000 of expense, you might have a problem
(4) If your plan advisors, broker, consultants tell you your existing 10% trend fits the norm, you might have a problem
(5) If your plan pays hundreds of thousand dollars annually for disease management and the only result you see is one out of 100 members talking to a nurse, you might have a problem
So, maybe you fall into a few of the top Foxworthy-isms. Believe it or not, this performance can be turned around in as little as a year or two. What do you do? Here’s my advice:
• Work with advisors/vendors who win solely when you win. If you’re partnering with a public company, MCO/consultant/broker, look at their financial performance on one of the multiple finance websites. Yahoo finance is a great spot. How is their stock, profits, cash flow performance? If they are succeeding wildly while your plan fails, you probably are not receiving the best advice? Why would you pay more in fees and commission while your plan performs negatively? Pay for performance and zero for failure. Make your advisors stay awake at night worrying about the care/lack of care your members receive. If your plan is failing, yell, scream and threaten firing all vendors. Here’s a nice take-away. MCOs are dumping huge sums of cash into client wellness funds to be selected during bidding competition. If you are humming along with an MCO/TPA, demand some wellness cash! Ask $40K per thousand employees covered.
• Are you treating plan reports, performance metrics from your MCO/TPA as gospel? Do you think they report on failures/weaknesses concerning your plan while you pay fat ASO fees? (If so, I have some beautiful, airboat accessible, home sites in the center of the Everglades for you to consider purchasing). This is where plan managers fly blind. Identify and implement services from an independent, patient centric deep data mining company. Analyze health data as a risk manager focusing on prevention, disease mitigation and financial accuracy. Read and analyze your existing employee benefits contracts closely. With your data mining functionality you’ll be able to determine if your plan is paying 2000% markups for cheap generic drugs delivered via mail. PBM performance is an easy way for plans to save $10-$15 PEPM. Ask simple questions like, what percent of our women members are receiving breast cancer screenings past age 50?
• Where is your health plan money being spent by service category? Plans performing in the top 10% spend over 15% of their total budget on primary care services. The vast majority I see spend less than 10% on primary care.
Furthermore, please don’t be assured a Republican win in November will clear the threat. The “right” wants to remove the corporate tax deductions for employer sponsored healthcare. An era of employer-driven healthcare reform is needed to mitigate risks and lower costs.
And a last thought. Worry about your plan members receiving appropriate health care services in the same manner you worry about your family members receiving correct care. The higher the quality, the lower the cost!
As Geoffrey Hickson said: “If you forget you have to struggle for improvement you go backward.”
Tags: health, healthcare, insurance, member care, plan managers, price transparency
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Anyone paying attention to our current national healthcare situation has surely seen published examples of pricing defying all realms of logic. For example, MRIs priced at $3000 for individuals without insurance, $1500 for individuals with insurance and, wow, $300 for individuals paying cash. Here’s the result of a recent Consumer Reports Study! http://tinyurl.com/7pnj4wx
I know, things like this make you want to pull your hair out. It’s simply a function of no transparency, infused with high utilization rewards/fee-for-service, plus a lack of value measurement, coupled with oversupply, fragmentation of care and unaccountably from spending someone else’s money. Our healthcare system lacks basic laws of supply and demand, accountability and economic reality. On the good side no place on earth can provide better care needed for critically ill patients.
For plan managers, such marketplace disruption can create some phenomenal opportunities to provide member care while sequentially saving vast dollars sums. For example, let’s say you’ve swallowed the consultant’s Kool-Aid and have a HDHP plan design w $3000 deductible while allowing members to make deposits into an HSA. Yes, yes, we all know annual physicals are covered at 100%, assuming nothing is diagnosed. However, you’ve adopted a plan design which essentially prevents members from receiving the lowest cost, highest value healthcare delivered to prevent chronic disease or manage emerging disease. For the sake of argument, let’s assume the same plan design in place but look to the crazy pricing variances for ways to cover the underinsured risk, i.e. the first $3000 annually:
- Primary care. If your members are within a distinct geographic area/areas, why not contact a few of the larger primary care practices and ask for a capitated, or cash deal to treat your members? Cash deal means completely outside of your plan. Members would have no co-pays for doc visits and blood tests. Common low-cost generic drugs could be paid by the member or reimbursed by the employer, in or outside of the plan. What kind dollars would be involved here? Maybe an initial $100 cash payment when a member goes to the physician followed by a $40 per member per month payment.
- Ancillary care. From the press we know pricing differences are amazing. Cash prices for CAT Scans can be 10% of the insured price. Simply coach members with the option of calling providers and asking for the cash price without mentioning they have coverage under a high deductible plan. These vastly reduced cash prices will not go towards the satisfaction of the deductible however from an economic perspective this practice makes perfect economic sense.
- Inpatient hospital care. This is what insurance is for, so have members utilize the discounts available under the high deductible plan.
Empty airplane seat? I use is simply as an explanation of why such extreme variances exist in the health care system. A jetliner taking off with empty seats is simply losing seat revenue. This is why such wild price variances exist in the airline industry. It’s better to collect $.50 from a dollar ticket then receiving zero from an empty seat. The exact same thing happens with healthcare procedures. As an example, hospital A purchases a $2 million dollar CAT Scan machine. The hospital’s fixed cost is exactly the same whether it’s being utilized or not. Their expense includes capital outlay, interest and personnel necessary to operate the equipment. If they normally received $2000 per procedure and equipment is not utilized 50% of the time, it makes perfect sense to collect $300 per procedure during the time the machine is not being utilized for the $2000 procedure. Pricing information is invisible to consumers and the fact they charge either $2000 or $300 isn’t a problem.
How to plan managers take advantage of these situations? The answer is simple. The same way we purchase cheap airline seats. We explore, question, investigate and ask. The attached link shows a physician perspective. http://tinyurl.com/chx8quh
Tags: contracts, employee benefits, healthcare
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Employers sponsoring self-funded health benefit programs typically make vendor decisions based upon proposals submitted in a “request for proposal” (RFP) process. A decision is made to contract with, for example, ABC administrator/pharmacy benefits administrator, an application is signed and a contract returned for execution. I’m always amazed when I ask a client employer for a vendor contract and initially receive the actual proposal, instead of the contract. Why? Because proposals show clients what they think is being purchased on behalf of members but executed contracts rule the process. Typically, disputes don’t come from the benefits delivered but from the pricing methodology/price the client thought was agreed to.
As an example, many managers believe with self-funded arrangements they are paying a fee in return for service. Some plan sponsors exhibit shock when they learn their vendors are enjoying additional profits by spread-pricing products purchased via their administrative services only, (ASO) agreements.
One of the great puzzles associated with the employee benefits arena is how a large employer’s legal team can hold up a contract to purchase “trucks” for months, on intricate contract details, but then blindly provide authority to sign employee benefits contracts which run counter to the proposals used in the decision process. The following represents contractual clauses from a prescription benefit management company. I have underlined a few provisions which should provide anxiety to the individuals preparing to sign this contract.
Why worry about this? In many instances these practices unnecessarily increase the fixed cost of programs. For example, the contract below may increase cost of prescription drugs to members by $10-$15 PEPM. If this amount were reallocated to provide additional health services possibly employer paid health care inflation could be eliminated?
FINANCIAL DISCLOSURE TO DEN INDEMNITY SCRIPT COMPANY PBM CLIENTS
This disclosure provides an overview of the principal revenue sources of Den Indemnity Script Company, Inc. (DISCO) and does not supersede any of the specific financial terms and conditions between DISCO and an individual client. In addition to administrative and dispensing fees paid to DISCO by our clients for pharmaceutical benefit management (PBM) services, DISCO derives revenue from other sources, including arrangements with pharmaceutical manufacturers, wholesale distributors, and retail pharmacies. Some of this revenue relates to utilization of prescription drugs by members of the clients receiving PBM services, DISCO may pass through certain manufacture payments to its clients or may retain as payments for itself, depending on the contract terms between DISCO and client.
Network Pharmacies— DISCO contracts for its own account with retail pharmacies to dispense prescription drugs to client members. Rates paid by DISCO to these pharmacies may differ among networks and among pharmacies within a network, and by client arrangements. DISCO agreements generally provide that the client pay DISCO for ingredient cost, plus dispensing fees, for drug claims at a uniform rate. If the rate paid by client exceeds the rate contracted with a particular pharmacy, DISCO will realize a positive margin on the applicable claim. The reverse may also be true, resulting in a negative margin for DISCO. DISCO also enters into pass-through agreements where the client pays DISCO the actual ingredient cost and dispensing fee DISCO pays the pharmacy. In addition, when DISCO receives payment from a client for payment to a pharmacy, DISCO retains the benefit of the use of funds between these payments. DISCO may charge pharmacies transaction fees to assess this goes pharmacy claims system and for other related administrative purposes.
Brand/Generic Classifications— Prescription drugs may be classified as either a brand or generic however, the reference to a drug by its chemical name does not necessarily mean that the product is recognized as a generic for adjudication, pricing or co-pay purposes. DISCO distinguishes brands and generics through a proprietary operating algorithm that uses certain published elements provided by First Databank including price indicators, generic indicator, generic manufacturer indicator, generic name drug indicator, innovator, Drug Class and ANDA. The proprietary algorithm uses these data elements in a hierarchical process to categorize the products as brand or generic. The proprietary algorithm also has processes to resolve discrepancies and prevent hopping between branded generic status price fluctuations in marketplace availability changes. The elements listed above and sources are subject to change based upon availability of specific fields. Updated summaries of the proprietary algorithm are available on request.
DISCO Subsidiary Pharmacy Discount Arrangements— DISCO subsidiary pharmacies purchase prescription drug inventories, either from manufacturers or wholesalers, for dispensing to patients. Often, purchase discounts off the acquisition cost of these products are made available by manufacturers and wholesalers in the form of either upfront discounts or retrospective discounts. These purchase discounts, obtained through separate purchase contracts, are not formulary rebates paid in connection with our PBM rebate programs. Drug purchase discounts are based on the pharmacy’s inventory needs and, at times, performance of related patient care services and other performance requirements. When a subsidiary pharmacy dispenses a product from its inventory, the purchase price paid for the dispense product, including applicable dispensing fees, may be greater or less than that pharmacies acquisition cost for the product net of purchase discounts. In general, are pharmacies realize an overall positive margin between the net acquisition cost any amounts paid for the dispense drugs.