Jim’s Take

Controlling Hospital Drug Costs

The US spending – particularly among private employers – is getting national attention.  But there’s one area in which there isn’t that much attention … but not knowing about it can cost your plan plenty of money.

But most plan advisers aren’t even aware of it, and if they are aware, they don’t have a strategic way to protect you.

On the other hand, Business Benefits not only knows about the plan, but we have a couple of different ways to help you mitigate the cost.

So What’s the Problem?

The problem is caused by the increasing trend of hospitals to insist that patients getting drugs via infusion get them in an outpatient hospital setting.  Here’s what happens when they – the hospitals – can do that.

  • You take your Pharmacy Benefits Manager totally out of the picture.
    • We’re big on using the “right kind” of PBM. A fiduciary PBM.  One who is paid ONLY by a per-script or PEPM model and doesn’t participate in drug industry kickback schemes (they pass all kickbacks to you, the employer).
    • But the PBM only has control over drugs purchased by mail or via a local pharmacy, i.e. drugs obtained through the normal channels. When the hospital buys the drugs, they get them directly from the wholesaler or manufacturer, and the PBM never sees them.
  • You overpay. A recent study showed that hospitals charge four to seven times as much for the drug as it would cost through normal distribution.

And What Can I Do

What can you do?  Well, first thing is that this is a very uncommon treatment from the perspective of the number of patients who experience this scenario.  But while uncommon, it is extremely expensive.

One of the ways we fight this problem is through the use of cutting-edge Third-Party Administrators for self-funded plans (if you’re fully insured, you don’t really have any effective way to fight this problem).  For example, the TPA who handles this best has a procedure and a service that they use to combat this waste.

Basically, the way it works is that they scan every hospital invoice looking for a “J Code.”  A “J Code” is the code that is used for this kind of in-hospital drug infusion.  When they spot it, they identify the drug and use their supplier.

Just as the hospital buys the drug and marks it up, so does this service.  The difference is in A) the convenience of the service and B) what they charge.

  1. For the patient’s convenience, a nurse comes to her home to do the infusion.
    1. This avoids the hassle of going to the hospital, parking a long way from the entrance, walking into the hospital, and then going to the outpatient department, waiting your turn, getting your shot and then returning home. Pain in the neck.
  2. As for the cost, the markup is 0%, not 400%.

Recently, an employee’s $7,500 monthly-hospital-administered drug regimen had the following cost:

  1. Cost of drug to hospital – $16,500
  2. Hospital facility charge $13,500
  3. Total charge to plan – $30,000

Compare that to the TPA’s program:

  1. Cost of drug to TPA – $7,500 — no markup at all
  2. Plus 25% of savings: $30,000 – $7,500 = $22,500 time 25% = $5,625
  3. Charge to employer plan – $13,125
  4. Savings for employer plan – $16,875/month

That’s a significant difference … particularly considering that this procedure was happening monthly.  That saved the employer $202,500/year!

Cost Reduction Method #2

So having the right TPA is a great way to put dollars to your bottom line when expensive drugs are involved.  The second way to attack this cost problem is to have the best possible Utilization Management.

Please understand that when you use the traditional TPA, you get no program such as the one I just described.  Moreover, even with this plan you need to have at least ONE MONTH of massive overcharge for them to “find” the J code.

While it’s still a good deal, how about the plan in which you have

  1. An active Utilization manager, and
  2. A fiduciary Pharmacy Benefits Manager (PBM)

What happens then?  Let me define the terms and tell you how it impacts this specific program.

An Active Utilization Manager takes the place of the traditional insurance company pre-certification agent.  Instead of the employee or her doctor calling the insurance company for pre-certification, they call the UM, who is generally a nurse with MD backup.

Instead of doing what the insurance company does, i.e. simply check to assure that the specialist and hospital are in the network, the UM will be more proactive.  The nurse will research the specialist or hospital or both to determine if they meet appropriate quality measures for this disease.

If not, the UM will call the patient and offer other alternatives.  But if the patient chooses to stay with the specialist and hospital initially recommended, then the UM will keep track of what is recommended.  In this case, when an injectable drug is recommended and the hospital setting is offered, the nurse will proactively offer the nurse-at-home-option.

And a fiduciary PBM will ALWAYS give 100% of the drug manufacturer rebates to the employer, not to the TPA and not to themselves.  And they’ll never mark up a drug – you’ll always pay what they pay.

It is best if the employer’s plan offers an employee incentive for compliance with the UM’s recommendation – like a $0 out of pocket option.  I mean, what the heck, the employee shares in the premium and takes all of the medical risk, so why not let them lower their cost when the employer is also going to save?

The key to all of this is to remember that employees don’t have ready access to the tools of cost control.  They also – absent a plan incentivehave no reason to care.

If you, the employer, attack BOTH of those problems by giving them access to knowledge and a cash incentive to do the right thing, you and the employee can profit mightily.