Newly united pharmacy searches for new payment model as Medicare drug benefit looms




Newly united pharmacy searches for new payment model as Medicare drug benefit looms

Pharmacy has become a favorite whipping boy for escalating drug costs among state Medicaid programs and private insurance plans that continue to turn the screws on traditional product-based fees. But many in pharmacy think that's just plain wrongheaded and have set out to create a new reimbursement formula to pay for the products and the professional services that they argue save healthcare dollars in the long run.

Politics isn't the only thing that makes strange bedfellows; money, or the lack thereof, can also force divergent interests under the same blanket. For once, the professional and business sides of pharmacy are working together on ways to approach the prospect of a Medicare pharmacy benefit that's driving the search for a new payment formula.

"There is a fair amount of agreement in pharmacy right now," said Lucinda Maine, senior v.p. for policy, planning, and communications, American Pharmaceutical Association. Echoing the sentiments of many other pharmacy leaders, she added, "It has coalesced largely as we've needed to be prepared to respond to the question of how the profession would want to be paid for a pharmacy benefit under Medicare. Our chances are that much greater because pharmacy is pretty unified, and we're not being played one against the other, as we have been sometimes in the past."

Part of that unified response is the Pharmacy Benefits All coalition launched last month by eight national organizations representing pharmacists in chains, independents, managed care, nursing homes, hospitals, state associations, and the profession at large. In a letter to then-Senate Majority Leader Trent Lott, the group laid out its rationale for a Medicare pharmacy benefit that would make pharmacists responsible for managing the medications of seniors and pay them based on the intensity of those services.

"Policymakers continue to discuss the best approach to establishing a comprehensive outpatient pharmacy benefit for seniors," the coalition letter said. "We believe that all seniors should have access to the important medications that they need to maintain their life and health. We urge you to consider the views of the nation's pharmacies and pharmacists—one of our nation's largest, most accessible, and consistently most trusted groups of health professionals—as these important discussions continue."

The coalition stressed that its members are committed to working with Congress, the Bush Administration, the Health Care Financing Administration (HCFA), senior advocacy groups, and physician groups to help design an outpatient pharmacy benefit for seniors that "improves medication use, helps control overall healthcare costs, and enhances the quality of life."

Adding a Medicare Rx benefit will be "the single most substantial and important addition to the program since its inception 35 years ago," according to the coalition's background paper. "We must ensure that any new program established provides the most cost-effective pharmacy benefit... Seniors, taxpayers, and the public at large deserve nothing less than our best effort."

Part of that best effort means recognizing pharmacists and pharmacies as the center of the drug therapy management action. And it also means paying them enough to make it worth their while financially to provide the services and programs the Medicare crowd needs to make the best use of their medications, in terms of both costs and health outcomes.

The Pharmacy Benefits All plan will be laid out for Congress and the Bush Administration in advance of the upcoming Medicare debate on the Hill, said Craig Fuller, president-CEO of the National Association of Chain Drug Stores, in a prepared statement. He noted that seniors need access to medications, but "prescription drugs are only effective when used properly, and without pharmacy services to aid in the use of medications, there will continue to be unnecessary medical costs for which Medicare is already paying a substantial price."

Pharmacy groups have done a good job of staying on message about drug therapy management during trips to Capitol Hill about Medicare, according to Kurt Proctor, R.Ph., Ph.D., NACDS senior v.p.-pharmacy policy and operations. "We are very hopeful that enough people understand the role of the pharmacist and that it's important not to have just a drug benefit but to have a pharmacy benefit," he said.

Golden opportunity

Medicaid reimbursement cuts, Rx discount card programs, and the ever-dwindling average wholesale price (AWP) contracts offered by insurers underscore pharmacy's sense of urgency to retool the reimbursement model. There's also the added pressure of the desire by HCFA and state Medicaid programs to scrap AWP, which has been painted in some circles as an unfair and unreliable model for Rx reimbursement.

Operating partly through a Joint Commission of Pharmacy Practitioners (JCPP) working group, pharmacy leaders have zeroed in on two aspects of the payment model they would like to see adopted under a Medicare benefit. One is the traditional product/dispensing fee mode, and the second is payment for what are now referred to as medication therapy management services. The American Society of Consultant Pharmacists "has been willing to take the lead on discussion of the traditional side of the equation, and APhA has tried to spur discussion of the professional services side," said Maine. "Both are still works-in-progress, but both provide reasonable and sustainable streams of reimbursement to support the financial basis for what it is patients want pharmacists to do. That's a very important point."

A four-tier payment model that would cover the drug product, the pharmacy's overhead, compounding/ dispensing activities, and professional services was drafted by ASCP. The product cost would not be based on the current AWP, but the actual price mechanism hasn't been finalized. Possibilities include actual acquisition cost, wholesale acquisition cost (WAC) plus a percentage, or average manufacturer price plus a percentage. The compounding/dispensing fee would be based on how much labor was involved, such as IV preparation or compounding versus counting and pouring. The professional fee would cover the cognitive services of the pharmacist.

"We're looking for a new, more appropriate way for pharmacists to get paid," said R. Timothy Webster, ASCP executive director. "Most people agree that the current payment methodology does not serve the business or professional interests of pharmacy. The current AWP minus 100% plus nothing doesn't quite work. The product cost method doesn't lend itself well to getting paid for medication management services or the activities associated with dispensing the product itself."

Debate over AWP

The AWP model has been tarnished by federal and state investigations into allegations that some drug manufacturers inflate AWPs to allow dispensing physicians to overcharge Medicare and Medicaid. Last September, for example, Bayer Corp. agreed to pay $14 million to settle allegations that it caused providers to submit fraudulent claims to 47 Medicaid programs by grossly overstating AWPs, which the states use to set reimbursement rates.

While AWP may be under siege in some quarters, it still has utility for community pharmacy, according to Proctor, of NACDS. The AWP model used in community pharmacy may be tainted by what goes on in the physician dispensing market, he said, but "AWP is not broken, and we don't believe that outpatient pharmacy should run from it. It's a legitimate benchmark, well-known and understood on both sides of the contract. It serves as the starting point for determining reimbursement for real-time payment of claims. AWP minus a percentage plus a fee is clearly what it's all about, and pharmacies fight every day the fact that it's take it or leave it."

Reluctance to let go of a known quantity has led some in pharmacy to question the wisdom of moving away from traditional AWP, ASCP's Webster acknowledged. But he admitted that it isn't clear yet what final form the product piece of the new payment paradigm might take.

"The areas where we don't have the answers or a whole lot of experience relate to product costs and professional services," Webster told Drug Topics. "Product cost reimbursement is a very difficult part of the equation, and I don't know what it might be. But we've got to move forward on it. It deserves lots of attention and discussion by pharmacy, policymakers, and purchasers."

Consultant pharmacists are anxiously awaiting the results of a study being done by the General Accounting Office at the direction of Congress. The GAO is examining AWP pricing issues as part of a study of Medicare Part B payments. The report will look at the difference between average acquisition prices and Part B reimbursement to see if payments are adequate to compensate for other costs, such as administration and handling. The report is due in August.

One absolutely essential ingredient in any new payment model must be return on investment, said Todd Dankmyer, National Community Pharmacists Association senior v.p. of communications and strategic initiatives. He noted that the National Institute for the Advancement of Community Pharmacy created by NCPA and NACDS will be funding research into payment models.

"A lot of pharmacists are afraid to talk about it, but return on investment is a core principle," Dankmyer said. "We also stress that we don't want to get trapped in the notion that ingredient cost is just the price of the product we purchase from the manufacturer or wholesaler. There's also the wholesaler add-on cost, the cost to order the product, the cost to stock it on the shelves. This is a very important point not a lot of people are talking about."

The fact that the many factions of pharmacy have, to some degree, reached détente is nice, but such internal agreement is only half the battle, according to Dankmyer. "This is not an academic exercise," he said. "We can all sit around the table and say [a reimbursement formula] looks good. But at the end of the day, that won't mean a thing because this is about what the payer community is going to accept and what the political process is going to accept. We've had a devil of a time getting payers to accept payment for pharmacists' services. The really hard part is we're asking folks to accept this in an environment where everything is about cost-containment."

Status symbol

As if changing the traditional formula for paying pharmacies weren't formidable enough, the profession has another steep mountain to climb: being recognized as healthcare providers. Provider status is the key that can open the vault where the real money is stashed in safe deposit boxes marked "healthcare services." Unlike doctors and nurse practitioners and physicians' assistants, who are all recognized as providers of services, pharmacists are still tied almost exclusively to products when it comes to being paid. If they want to move beyond the ever-diminishing AWP minus a percentage plus a small fee, they have to be able to get their foot in the bank's front door.

Winning federal provider status tops the national legislative agenda of the Pharmacists Provider Coalition recently set up by ASHP and the American College of Clinical Pharmacy (Drug Topics, May 21). The coalition's bill to amend the Social Security Act was introduced by Sen. Tim Johnson (D, S.D.) last month. The Medicare Pharmacists Services Coverage Act recognizes pharmacists as healthcare providers and sets up a mechanism to pay for medication management services under Medicare Part B. If the legislation is adopted, not only will it get pharmacists inside that bank door, it will also position them to cash in if Congress and the President ever agree on a Medicare Rx drug benefit.

The ASHP-ACCP effort is built on the foundation of the collaborative practice agreements currently permitted by 30 states. Such regulations generally allow pharmacists to initiate, monitor, or modify a patient's drug therapy under a written protocol with the prescriber who has overall responsibility for the patient's care. Pharmacists providing services under protocol would be recognized as providers eligible to bill Medicare, according to C. Edwin Webb, Pharm.D., M.P.H., ACCP's director of government and professional affairs.

Cracking the code

If pharmacy succeeds in winning provider status and changing the payment structure, there's yet another obstacle: billing codes. Professional services are built into the new Version 5.1 claims processing standard developed by the National Council for Prescription Drug Programs. The U.S. Department of Health & Human Services selected 5.1 as the pharmacy standard under the Health Insurance Portability & Accountability Act (HIPAA). But HHS selected the X12N 837 transaction as the HIPAA standard pharmacists will have to use to bill for their professional services under a patient's medical coverage.

That HIPAA mandate means R.Ph.s will use the same billing guide physicians will use. And the American Medical Association has a lock on the Current Procedural Terminology (CPT) codes that providers use to bill the government and insurers for their services. CPT codes describe medical or psychiatric procedures performed by physicians and other health providers. The codes were developed by HCFA to assist in the assignment of reimbursement amounts to providers by Medicare carriers. Most managed care and other insurance companies, however, base their medical fees on the values established by HCFA.

Pharmacy leaders will have to devise CPT codes to explain what it is they do and get AMA to recognize them as legitimate codes for Medicare billing. APhA has already appointed a small group to work on the code problem, said Maine. The group will "propose a fairly limited set of descriptive codes, in the CPT code framework, that capture the dimension of patient care services pharmacists offer," she said. "That set would be brought back into JCPP to make sure all the pharmacy organizations believe that it does, in fact, encompass clearly and in a straightforward, understandable manner what is involved in the delivery of patient care by pharmacists."

Once the profession agrees on the codes, the "hard work begins of trying to get the public and private purchasers to agree that these codes are clear and make sense," Maine said. "At some point, we will probably approach AMA to see if we can get them recognized as specific codes for medication therapy management, which is the term we've been using in the context of a Medicare pharmacy benefit."

Whatever codes are adopted will have to fit within protocols that are acceptable to the payers, said David Schwed, a New Jersey pharmacist who's a member of APhA's Strategic & Tactical Analysis Team (STAT) on payment and empowerment. It's critical that protocols be devised to permit pharmacy to successfully close the electronic loop with the payers to earn reimbursement for professional services, he said, adding, "It doesn't matter what you send to the payers if they don't accept it."

Now or never

Time is running out for the profession to implement a payment model for professional pharmacy services, according to Schwed and others on the APhA STAT. In a presentation at APhA's annual meeting in March, panel members noted that deadlines imposed by HIPAA and other federal programs are looming larger. They warned that the feds require any new payment system to be in place by the time HIPAA goes live in April 2003.

The two-minute warning hasn't sounded quite yet on creating a new payment methodology, countered NACDS' Proctor. But he feels that if politicians and bureaucrats get hyper about abolishing AWP because of the gaming going on in the physician-dispensing arena, there could be "some urgency" in looking at a new reimbursement benchmark. But for now, there isn't any significant anti-AWP action as it relates to the pharmacy side of public programs.

Pharmacy must not be too hasty about scuttling AWP and must be prepared for an uphill battle, cautioned NCPA's Dankmyer, who hasn't detected any federal moves to replace AWP in Medicaid. "We must be very careful about this notion of throwing out AWP," he said. "That's just wrongheaded. The case has been made for the value of pharmacists' professional services, but the bottom line remains we've got to get payers to be willing to pay for it and try out a model, whatever it may be. That will be a slow process."

Maine of APhA and ASCP's Webster have a different take on the need to get things moving quickly. Webster believes the "clock absolutely is ticking." And Maine feels pharmacy is "under the gun a little bit. Sooner is better than later for pharmacy to have the answer for what we believe is correct, because if we don't, we're very conscious of the fact that someone else will make it up for us."

"There is no explicit timeline, but it must keep pace with the discussion of the Medicare drug benefit," Maine continued. "This is a high-stakes game. If we make a misstep in the recalculation of the product cost and are unable to make substantial progress over the next couple of years on patient care services payment, then I think a lot of people acknowledge that we're in a losing proposition. We are literally talking about the future of pharmacy."

Carol Ukens


The American Society of Consultant Pharmacists developed the following four-part formula for the payment of pharmacy products and R.Ph. services:

Element A—Product cost

The current form of average wholesale price (AWP) would be scrapped in favor of a yet-to-be-determined definition of product cost, such as actual acquisition cost or wholesale acquisition cost plus a percentage or average manufacturer cost plus a percentage.

Element B—Overhead cost

Calculated as a percentage of the product cost, the overhead component would cover standard operating expenses, such as inventory, occupancy, utilities, management, delivery, etc.

Element C—Compounding/dispensing fee

Accounting for the cost to prepare a product for use by the consumer, this fee would vary according to the preparation required. For example, IV mixtures or compounded drugs would rate a higher fee than counting and pouring.

Element D—Professional services fee

Covering the various levels and types of patient drug therapy management provided by the pharmacist, this fee would be paid for services such as prospective drug utilization review, counseling, monitoring, and prescriber interventions.

Source: American Society of Consultant Pharmacists


Carol Ukens. GETTING YOUR FAIR SHARE. Drug Topics 2001;11:33.

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