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Managed Care Challenges vs. Physicians' Abilities to Provide the Care Their Patients Need
An overview of the existing major health insurance entities and how they will, and do impact your daily practice.
Healthcare in the United States has changed dramatically in the last fifteen years. Physicians, once the key decision makers, are now part of the healthcare decision-making process, but the insurer and/or its contractors wield the power to have final determination on medical necessity for our patients' care. As advocates for our patients, we fight a seemingly endless battle to get the care they need, be it a prescription, procedure, diagnostic test or referral.
However, as the professional liability insurance (PLI) crisis continues, our inability to always obtain care we deem medically necessary places us on the proverbial hot seat from a medicolegal perspective. Federal Supreme Court case precedent (Aetna Health Inc. v. Davila) prevents patients from suing the insurance companies when they make negligent decisions, despite some federal statutes open to liberal interpretation by either side.(1,2) If the suit is to remain alive, the doctors involved are often the next perceived deep pocket in line.
In part, strict, managed healthcare is couched as a cost-saving initiative. Yet, as for-profit healthcare booms, our patients and the overall quality of healthcare in America suffers as major insurers are limiting benefits and even dropping patients to boost their bottom line.(3,4)
Driven in large part by shareholders these now publicly traded companies' profits continue to soar. Both well-heeled and influential, to date nothing seems to stand in their way as potentially monopolistic market domination beckons as the total number of players lessen with time. The two entities of concern are the private health insurers and their own pharmacy benefit management companies (PBMs) or those PBMs that are private and are contracted for pharmaceutical management.
Therefore, if one is not fully cognizant of the dangers inherent in doing battle, one cannot fully know the benefits of doing battle.
-Sun Tzu, The Art of War
As providers we need to have a clear understanding of the insurers' and PBMs' motives and corporate landscape. Many providers have stood defiantly ignorant amidst ivory tower principle professing patient care as the only noble focus.
That is a naïve and cowardly stance for in the absence of overt, boisterous opposition patient care has suffered and we must demand accountability and change, which begins with education.
Physician and patient education must commence so that we may focus on the issues impeding our ability to put patients first. Not shareholders, profits, prior authorizations or other paperwork, but patients as the primary focus in our practices. Some might argue it is too late, but we can and must begin a knowledgeable, well-organized, tactical attack on those entities preventing us from providing state of the art, quality healthcare to our patients. We must understand what we are fighting in order to win.
The Problem
Competition, the lifeblood of capitalism, should result in lower costs. The playing fields must be even and no unfair advantage given to either side. Left unencumbered the system should work. Near monopolistic markets, multibillion dollar companies and marked political influence makes physician vs. managed care an unfair fight from the start.
In the PBM arena only four companies account for over 70 percent of the American market. Excluding the Anthem/WellPoint PBM numbers, sales in 2003 exceeded $61 billion with a collective net profit of over $842 million.(5) Medco Health Solutions, Inc. (Medco) had a disproportionate majority of that money and in 2004 exceeded expectations again.
Caremark, second only to Medco in the PBM market, more than tripled their 2003 sales numbers by second quarter 2004 with $7.3 billion and by year-end was well over $15 billion in sales. Caremark's federal nod to manage the Medicare pharmacy benefits this past summer did not hurt their market value either as by the end of 2004 they were also over $15 billion for fair market value.(6,7)
HMOs in the United States had an 86 percent increase in profits for 2003 from $5.5 billion in 2002 to $10.2 billion. Kaiser accounted for 20 percent of the increase while Blue Cross and Blue Shield plans saw a 63 percent increase in the same time frame from $3.3 billion to $5.4 billion. Of note is that the Blues' health maintenance organization (HMO) plans decreased membership between 2000 and 2003 by nearly 2 million members, but saw profits rise by 507 percent from $189.6 million in 2000 to $1.5 billion as of 2003.(8,9) United Healthcare too, with Global 500 status, has opted to decrease membership despite hundreds of millions of dollars in profit.(10)
Ironically, the passage of The Health Maintenance Organization Act of 1973 came after successful trials of HMOs for Blue Cross Association member plans.(11,12) More ironic is that over 75 years ago, when the precursor to contemporary Blue Cross and Blue Shield was founded, doctors had a great deal of input in how this plan was run and care delivered.(13)
At its inception the intent to manage care was good. Control costs and still provide high quality care. Physician input was part of the system, but with clairvoyance lacking the notion that one day someone on the other end of phone, possibly without a medical degree, would be following a flow chart or check-off list to determine if a patient can have an MRI or a prescription seemed unthinkable. None would argue that physicians are no longer in control and that patients are not always getting the care they need. The question remains whether we can affect change in the current environment.
Putting the privacy component of Title 2 aside, HIPAA Title 1 can be lauded as it prohibits patients with preexisting conditions from being denied health insurance. They may have to wait 18 months and their rates are likely to be higher, but they will indeed have insurance. However, despite federal reform, the financial debacle of healthcare in the United States has patients demanding reform.
One study found over half those surveyed to be in favor of federal price controls for prescriptions, hospitalization and even doctor's visits.(14) While HIPAA may have mandated a piece of paper requiring an insurer to provide coverage, how does that help if the patient cannot gain access to the medicine or specialized care his or her preexisting condition might warrant? They cannot afford the care and the insurer refuses to cover it. Who bears that burden? Who bears the culpability of this patient's suboptimal care?
As Americans we do not like to discuss rationing of healthcare, but we ration care everyday depending on what is or is not a covered benefit under a patient's current plan. Patients who pay for insurance should be allowed to have access to care deemed medically necessary, otherwise the coverage is meritless and useless. The patient is then worse off than if they had been denied altogether and had to find or prepare for alternative means to cover medical expenses.
Furthermore, those under federally funded programs either need to be warned that the care will be suboptimal due to funding shortages or we need to better fund these programs. The latter is unlikely, but for the many unfortunate enough to be at the whim of federal and state legislators, we as physicians have an ethical duty to fight for the care they need. Unfortunately, due to the limits of the reimbursement structure many in private practice outside of federally declared shortage areas can no longer afford to see all comers. This too limits access and patients suffer as a result.
As providers, the concern has long been that the cost of doing business makes the current reimbursement system, particularly in the federal and state reimbursement arenas, a poor substitute for the indemnity plans of the 1970s and 1980s. These were fee for service reimbursement based on charges and not a formula to determine what is 'reasonable and customary.' What has become standard as reasonable and customary is in fact neither reasonable nor customary. In some instances there has literally been no reimbursement fee increases in over 20 years. With inflationary costs taken into account, it leaves providers being reimbursed less today than they were in 1980.(15)
This article is intended to help you have a better understanding of the existing major health insurance entities and how they will, and do impact your daily practice. Understanding why they do what they do will help to combat some of your managed care interactions.
Plan Benefits and Coverage: Rationale
Understanding that these are primarily publicly traded companies answering to shareholders first, more clearly elucidates why certain procedures, medications or other healthcare interventions are medically necessary. Furthermore, if we examine the decision-making from a perspective other than 'do it because I said so and I'm the doctor' we can have more victories and less frustration in getting our patients the care they need.
Conceptualizing that we are combating a business to pay for services it would rather do as inexpensively as possible, we sometimes need to rationalize from a financial perspective why this choice will save them money. This could be a more expensive proton pump inhibitor to stop emergency room visits for refractory GERD or a better pain medication, which might prevent recurrent imaging workups for a myofascial problem. This may seem unimportant, because the patients simply need their medications or studies as we ordered them. Yet, your medical arguments will be ineffective if they do not resonate with cost-saving administrators.
While many payors seem to make decisions that are arbitrary, often they are merely implementing policies the company thoughtfully purchased for their employees. Moreover, just because the card is from Cigna, Aetna or Anthem does not mean it covers the same services, providers, procedures or medications your last patient with a similar appearing card had covered. In Chicago alone, there are 17,000 different plan designs with unique benefit structures under one payor.(16) The key phrase in health insurance is 'you get what you pay for.' If you bought cheap insurance, you likely have cheap coverage.
While some treatment or diagnostic options may simply be unavailable due to contractual agreements in the policy itself, other times it is simply a matter of the insurer not wanting to spend money and denials and deferments fly from the fax machine.(17) Documentation in our notes as to why a patient needs to see the regional specialist or why an open MRI is needed when a closed system is available with participating providers just down the road can help alleviate time consuming letters, forms and telephone calls.
Furthermore, occasionally quoting the latest peer reviewed article in your dictation or adding it to your pull down menu in your electronic record can help well-document your medical justification. These frustrations are not going away soon, but as the class action suit has shown, insurers are being held accountable for some of their procedural actions and hopefully patient accountability will
eventually follow.
In early January 2005 physicians around the country were affirmed as the United States Supreme Court rejected an appeal by the HMOs allowing the class-action suit to move forward. Other insurers expected to settle are Health Net, Humana, Pacificare, UnitedHealth Group and WellPoint.(18) Presently, only Cigna and Aetna have come to the table, but soon the balance will follow as their appellate options have all but dissolved. This type of action coupled with a groundswell of proactive physicians on a case-by-case, patient-by-patient basis can and will make a difference.
However, in order to understand what we are facing an overview of the major insurers in Cigna, United, Aetna and WellPoint (Anthem) will be done and then the major PBM's will be analyzed. Lastly, an overview of the anticipated pharmacy benefit plan for Medicare will be reviewed in context of the vendor, Caremark, who will provide the benefit.
The Major Private Payors/Insurance in the United States
Anthem + WellPoint = WellPoint, Inc.
As of November 30, 2004 the long anticipated merger between California-based WellPoint Health Networks and Indianapolis-based Anthem was finalized. Operating with headquarters in Indianapolis the new company, WellPoint Inc., continues to be publicly traded with the estimated acquisition transaction value at the time of
the merger announcement being
$16.5 billion. By year-end
the fair market value exceeded
$20 billion.(19)
Critics opposing the merger are already seeing some of their fears come to fruition as heavy handed measures have been seen throughout the country as negotiating power with the new giant seems less likely. Anthem executives argued that neither competition nor reimbursement would be adversely affected. Nationally their medical membership is estimated at 28 million members.(20)
California and Georgia were the final two stumbling blocks as each state's insurance commissioner opposed the merger. Georgia Insurance Commissioner John Oxendine initially did not oppose the merger until he saw California's Insurance Commissioner John Garamendi oppose the merger.
Garamendi was sued by Anthem, but that case was eventually dropped. Both states settled ultimately netting $265 and $225 million, respectively for California and Georgia in healthcare and financial incentive for the states. The focus of this money is for rural and underserved patients to improve access and quality of healthcare.(21,22)
A particularly contentious issue was Anthem CEO's, Larry Glassock, incentive bonus based on the merger coming to fruition. Estimated at $42.5 million the stock and cash incentive bonus was reward for the creation of WellPoint, Inc. While none can argue the overt worth of such an incentive bonus, relative to their third quarter sales of $17.7 billion (WellPoint $22 billion) this is less than one quarter of one percent of sales and that is not counting the net worth of WellPoint pre-merger. If you add that to the numbers the bonus is less than one tenth of one percent.
The more stunning statistic is that Anthem, as an entity, did not exist six years ago and in 2004, post-merger, had a net income of $960 million dollars.(23) Both companies were in the Fortune 500 list last year and their positioning on the list is likely to improve, potentially into the top 50 based on last year's earnings and respective status pre-merger.(24) Investment analysts have predicted earnings' growth of 15 percent per year for next two to three years and see the company as 'undervalued' in terms of its current stock value.(25)
UnitedHealth Group, Inc.
Based out of Minnetonka, Minn., UnitedHealth Group, Inc. (United) has international presence with a Fortune 500 ranking of 54 and Global 500 Status of 185. For perspective, Ford Motor Company was ranked 156 in the Global 500 in 2004. United has many diverse holdings managing federal and state programs in addition to a variety of private managed care plans from HMO, to PPO (preferred provider organizations) and POS (point of service) programs.
Additionally, United is involved in some pharmaceutical development and even dental prosthetics. Sales for 2003 and 2004 were impressive at $28.8 and $37.2 billion, respectively. Market value for 2004 was approximately $45 billion and net income exceeded $2.5 billion. More than double the WellPoint, Inc.'s market value with 10 million less insured lives to cover, United continues to be prosperous. Some have suggested United is limiting membership to maintain or even increase profits. However, acquisition has been at the forefront of the last year as contested efforts continue in the New York metropolitan area.
The majority of the news with United has focused on the New Jersey Medical Society's lawsuit to halt the merger between United and Oxford Health Plans (Oxford).
United bid successfully to acquire Oxford for $4.9 billion soon after negotiations failed between Oxford and Wellchoice, the parent company of Empire Blue Cross and Blue Shield.(26) The New Jersey Medical Society filed their petition essentially after the New Jersey State's Department of Banking and Insurance ratified the deal citing inadequate consideration of the effects of the takeover on the 1.5 million insured lives to be handed over to United.(27) The Department ruled in favor of the sale in just three days, many weeks shy of the allotted evaluation period. The Society felt patients, doctors and competition among health plans would be adversely affected.
The initial merger announcement came in April 2004, and by September Oxford was not listed on the NYSE.(28) Yet, the matter is far from settled. A superior court judge in Mercy County, N.J. sent the case to a multi-judge appellate court panel, legitimizing the Society's concerns, much to the chagrin of United attorneys.(29) This story will continue to evolve, and speaks to the power of physicians to hold federal and state regulatory agencies accountable to thoroughly examine similar mergers or requests to become publicly traded entities that so often seem to happen with near automated efficiency.
Cigna Corporation
The federal class-action suit has, at least on paper, left Cigna looking to be one of the more compliant insurers around. The February 18 deadline ended the period for the nearly 900,000 retired and active physicians to opt into one of the three categories of claims.(30) Similar scenarios are to follow for the other insurers and sources close to the negotiations have noted the first group to settle would get the sweetest deal.
The Philadelphia-based company is indeed astute and savvy with impressive numbers. The multinational company had sales for 2003 at $18.8 billion with a slight drop in 2004 to $18.6 billion. Speculating the class-action settlement as a possible causative factor in the sales dip, it did not affect profits. The 2004 net was up by 131 percent to nearly $1.6 billion since 2003.
Cigna is listed on both the Fortune and Global 500 lists at 101 and 309, respectively. Their market value is significantly less than United, Aetna and WellPoint, but at $9.87 billion public trading is still going reasonably well. Diversity abounds in their national and international business. In the United States, Cigna medical plans cover 11 million lives. In the PBM arena, as well as behavioral and dental care, an additional 35 million are insured. Internationally, Cigna provides life, accident and health insurance to individuals, as well as large commercial clients.
The federal class-action suit gives doctors the power to mandate oversight and fair treatment via an objective third party review process if necessary. Below this is discussed further as Aetna is next in line to implement settlement agreements.
Aetna, Inc.
Based in Hartford, Conn., Aetna has been in the forefront of the federal class-action suit with Cigna. Details as to filing deadlines are still being finalized, but the deal reached is estimated to be worth $300 million to physicians. Furthermore, like Cigna, part of the agreement is to fix existing issues so reimbursement, appeals, credentialing, software edits–to name a few areas–are routine, consistent and not left unresolved. The www.hmosettlements.com Web site has more information, and if current issues with Aetna (or Cigna) persist, the mediator, Julia Stewart, Esq., can be contacted as she is there to enforce the class-action agreement in 'going forward' relief.(31)
In addition to the class-action issues, in December 2004 Aetna settled for over $20 million with a large physician group in Cincinnati, Ohio. The focus of the suit surrounded how Aetna reimbursed physicians. As part of the settlement agreement panels to resolve disputes will be established. This is similar to the federal suit's mandate of a national, physician staffed board or panel to review cases upon which the provider and Cigna or Aetna cannot agree.
Aetna is the last of the four major publicly traded insurers to be reviewed. Last, but certainly not least, they still have position 108 on the Fortune 500, and with 2003 sales of $18 billion and 2004 sales of $18.7 billion, they continue to do quite well financially.(32,33) Market value in 2004 exceeded $15 billion and sales the year prior were 2 million shy of 1 billion dollars. Aetna spent the last year restructuring to a solely healthcare related insurer selling off its business and financial services to Dutch owned ING.
Additionally, Aetna acquired back from Magellan Health Services (Magellan) the mental health portion of its business they sold to them in 1997. Magellan, reemerging post Chapter 11 bankruptcy in 2004, currently manages 80 percent of Aetna's mental health coverage. This relationship accounted for nearly 40 percent of Magellan's 2004 revenue. Aetna wants to trim costs and maintain the benefits for its 13.6 million members.(34)
Aetna also maintains 11 million dental members and over 12 million group insurance members.(35) Now solely a healthcare focused company, this is still a diverse and strong company. With the federal class-action suit imposing rules to physician-payor relationships over the next few years one can hope for collaborative relationships to be fostered and maintained.
Pharmacy Benefit Management
PBM's dominate consumer prescriptions. While mergers and name changes have run rampant in the last two years, the major players have remained the same. Furthermore, four businesses, by some estimates, account for nearly 85 percent of the estimated 200 million Americans in the PBM system.(36) Prescriptions are big business and American consumption, across all ages, is increasing. Nearly half of Americans take at least one prescription drug per day and nearly 17 percent take three or more.(37) People are living longer, but requiring medical and pharmaceutical attention to do so.(38)
The goal of the PBM is to save money per patient by optimizing the 'drug of choice.' Medications that are 'drugs of choice' are considered preferred. This preferred drug list (PDL) or formulary is derived in multiple formats. Typically there is a medical review panel, which hears from doctors, pharmacists and pharmaceutical industry representatives to gather information. The information is used to evaluate drugs in each class and help eliminate those that are redundant and/or too costly.
Another less overt method used in conjunction with or in some cases as the primary mechanism is the rebate method. Rebates are price discounts or monies paid by the drug manufacturer or sales company to positively affect the status of their drug(s) on the PDL. Rebate amounts are usually based on volume discounts or sometimes payment to the organization to list the medication as preferred over a competitor. Rebates are typically paid by the pharmaceutical industry, but PBMs have learned this is a potentially lucrative means to supplement their bottom line and, in some cases, to simply make a drug available that might not have otherwise been part of the PDL.
Some manufacturers might be willing to pay enough money to move their medications up the list, but in some cases this is unnecessary due to a drug's popularity or strong market sales. In some instances certain drugs that have more side effects and are potentially more dangerous are listed as first line in order to avoid the cost of the more expensive medication.(39)
Drugs are often tiered with generic available being on the lower tier and brand name medications on the higher tier. In the private insurance arena, that typically means three or sometimes four levels of copays for medications. It is still less expensive than paying cash for the drug, but it can create a disincentive to the patient as anyone would rather pay a $10 dollar copay vs. $50. If drugs are unavailable as first line therapy or if
a tiered pharmacy benefit is not available prior authorizations are
often required.
Prior Authorization
Certain private insurers and most Medicaid programs have opted to exclude from their formulary certain medications deemed too costly. Caremark's implementation of Medicare pharmacy benefits will have similar limits in place.(40) If starting a patient de novo on an ACE inhibitor or a statin, using the preferred drug, barring allergy or other contraindication, seems reasonable and cost-effective.
Moving up the formulary ladder in those cases makes sense. It is when a clear indication for a specific medication is unabashedly denied or if a stable patient arrives on our doorstep we are arbitrarily told to stop the stable medication and try one of their 'first line' medications. This simply makes no sense from a medical perspective, but from business perspective it is a multibillion-dollar industry.
If the doctor feels a patient needs medication, not available as a first line agent, a form is completed and, assuming medical necessity is shown, the medication is approved. If it is not approved, then a deferral or a denial is sent, sometimes with an explanation of why it was denied, but sometimes not. This is the area of contention.
Denials are costly to your practice as they take up staff time and often your time putting together a salient argument to get the medication covered. They also cost money to the PBMs if a certain doctor or practice repeatedly challenges them. In terms of having the doctor better elucidate why a medication is necessary, sometimes they work, but often they do not. Some doctors go straight to the State Attorney General or the State Bureau of Insurance to file a formal complaint and prompt an investigation to get results and
this can work very well.
It does not work for Medicaid or Medicare as most state insurance bureaus have no regulatory control over federally funded programs. Thus, you have to go to your State Bureau of Medical Services or to your regional Medicare office, respectively, to seek resolution. Vermont had a particularly effective policy to get medications covered for Medicaid beneficiaries, but due to over utilization, and likely budget constraints, it is being challenged and will likely be repealed.
An alternative for private insurance when a reasonable medical argument has failed is to have the patient (or partner/spouse) go to the benefit's office at their place of employment to seek a resolution from the organization that provided the insurance. The company's benefit's administrator has a great deal of clout as they often have the power to direct contract renewal. This person can usually resolve matters once brought to their attention as the policy was purchased to cover the company's employees and if it does not cover medically necessary healthcare, it is not particularly useful.
Oftentimes providers are frustrated seeing data that they are getting denied most of the time when 90 percent of prior authorizations (PAs) are approved. This may not in fact be the case. Instead, it is a numbers game. A late 1990s Medical Group Management Association (MGMA) study found that only 50 percent of denials for reimbursement are ever resubmitted. Denials in the PA arena are no different. If 100 deferrals or denials are sent out and only 50 percent resubmit the number is already down to 50. If those 50 resubmitted are denied the next round yields 25 to resubmit. If those 25 are denied for a third time there are, based on the MGMA study, only 12.5 denials being resubmitted.
The PBM managing the cases assumes the other 87.5 denials were legitimate as they were passively consented to by not challenging it again. If this organization approves 11 or 12 of the remaining 12.5 they have 'authorized' or 'approved' 88 percent or 96 percent, respectively. In fact, they denied 87.5 percent, but that is not what the data would support. This is frustrating and bad medicine, but a great business tactic.
As mentioned earlier, not only does the patient not get the medication for which you wrote (or outside the PBM world the imaging, referral, etc.), but you are likely culpable for this decision if it is unopposed. Opposing it on paper could be your only defense. Some providers have opted to only follow formularies thinking this will protect them because 'they had no other choice.' Wrong indeed. The choice is to fight. Even if formularies appear to be an easier way to get through the day, one must question whether this is truly what is right for the patient.
A deferral or denial is essentially the same entity as both typically have a paragraph that says 'if you would like to submit further information or documentation to appeal this decision we would be happy to review this case again at that time.' If you do not appeal you consent to the substitution and accept the potential ramifications to follow. If the difference is negligible then following the formulary may be appropriate. However, if it is an inappropriate decision, make that well-known and contest it. Do not contest it just to prove a point, but if it needs to be reversed begin the process and alert your patient of your efforts and how they can help.
Patients are often their own best advocates. We simply need to educate them that this is their insurance policy, their health at stake and they too need to work on this matter. Compliance after the work done to get the medication approved may in fact improve once the effort is seen. That has been my personal, professional experience, but no definitive study on this has been done.
Many payors have taken the stance that they are not denying medically necessary healthcare, they just are not going to pay for it. The patient is more than welcome to have the medication, service or procedure they simply will not authorize payment for it. For a portion of patients with the means to pay cash and fight later, this may be fine. However, for the disenfranchised it is a denial to obtain the care they need as they can ill afford to pay cash in most instances. In these situations it is a denial of access to medically necessary care.
Some states have a patient's bill of rights or other legislation to protect consumers from formulary driven medicine. However, often, even when it is present, neither the patient nor the doctor is aware it exists. Do challenge these deferments or denials. Do not stand for threats or intimidation, for you are simply advocating on behalf of your patients, which is not only our job, but our moral duty.
Major PBMs
In this last section, three of the four major PBMs, Medco Health Solutions, Express Scripts and Caremark will be reviewed. The latter will have an overview of its relationship to its Medicare role. The WellPoint PBM role is not discussed here as it is part of the financial conglomerate in the aforementioned segment on the WellPoint/Anthem merger. Bear in mind too that other payors reviewed above (Cigna, United, Aetna) run their own PBMs in addition to some of their plans contracting with freestanding PBMs.
Medco Health Solutions, Inc.
A spin-off of Merck (formerly Merck-Medco in 2003), the Franklin Lakes, N.J. company, has near monopolistic market domination with an increasingly small number of major players. As the largest PBM in the country it is also a large target. In April 2004 they were hit with a $29.3 million dollar fine and had to agree to tell patients, doctors and employers about billions of dollars in rebates they receive from the pharmaceutical industry, as well as modify their business practice of switching to 'preferred' drugs.(41)
Interestingly, investment analysts cited these rebates as primarily how Medco does business with its 65 million members filling over half a billion prescriptions per annum. Compare that to their 1998 numbers of 6 million members, a one year net income growth of 18 percent and it is no surprise that this company ranks 41 on the Fortune 500 list. Net income for 2004, with final calculations pending, will likely exceed $500 million with sales in 2003 of
$34 billion.(42)
Express Scripts, Inc.
Associated with 55,000 pharmacies and seven mail order companies to serve its 50 million members this Maryland Heights, Mo. company is well-positioned to remain a powerful force in the American PBM market.(43) In 1998 this company only had 4.6 million members and was among nearly 20 other competitors.(44) With nearly two-thirds less sales than Medco in 2003 at $13.3 billion, its income was only half of Medco's at $249.6 million suggesting they are running a more efficient operation.(45)
Express Scripts fills 400 million scripts per year, 100 millio?n scripts per year, 100 million shy of Medco, with 5,000 less employees at just over 8,500. One year net income growth was 23 percent with Fortune 500 status at 151.(46) In addition to formulary development they cover disease management, infusion therapy a 24-hour help line and specialty drug packaging to HMOs, self and group insured organizations.(47) Although not the largest PBM, they are a force with which to be reckoned within the PBM arena.
Caremark Rx, Inc.
Making headlines in 2004 Caremark Rx, Inc., (Caremark) is to provide the first Medicare endorsed prescription drug plan commencing in January 2006. Under the direction of Texan CEO Edwin M. (Mac) Crawford, Caremark, the Nashville-based group has done an about-face since he took over the reigns in 1998.(48,49) It took three years for him to get them out of the red for at that time the company was floundering doing physician management as MedPartners. That changed soon thereafter and they have been in the black since 2001.(50) In March 2004 Crawford was invited to Washington to discuss the feasibility of providing pharmacy benefits to Medicare beneficiaries. Later that summer Caremark was chosen as the beta test site for the job.
Financially, they are solid with a Fortune 500 status of 143. Around the Pennsylvania Avenue meeting time they also acquired another PBM powerhouse, Advance PCS.(51) Advance posted numbers in 2003 of $14.1 billion in sales and a net income of $168.4 million. Caremark for that same year had $9.1 billion in sales with a better sales-profit margin as net income exceeded Advance PCS's by nearly $130 million.(52)
With that acquisition and the Medicare contract in place, second quarter 2004 earnings were $139 million on $7.3 billion in sales
(80 percent of the entire prior year's sales) vs. that same quarter in 2003 with numbers of $69 million and $2.2 billion in net and sales, respectively.(53) Speculation of the Texas ties to getting the contract will be made and Crawford has done well post-merger and at the time of the pending announcement as to who would get the Medicare nod. In May 2004 he optioned 1 million shares purchased for $3.25 and sold them at $33.13/share for a 31 million dollar profit.(54)
Caremark buys direct from pharmaceutical companies and distributes to pharmacies or provides mail order refills. In addition they provide physician support, drug therapy management and patient education on generic medications and chronic disease management.(55) In 2004 both sales and market value exceeded $15 billion.(56)
Medicare Drug
Benefit Coverage
In January 2006, Medicare Part D commences. The launch is considered a demonstration project and will provide cancer and chronic disease pharmaceuticals. Exact details are still being examined. However, fears of financial stability and sustainability, as well as, the means by which the PBMs will implement this process have created tremendous controversy.(57,58) Formularies are the largest concern as draft guidelines have public and private sector representatives scrambling to be
heard and seek changes to protect their constituents.(59)
Currently formularies are the mainstay for PBM success. In this case federal officials have given broad definitions to allow for formulary development. The final product must contain certain vital drugs and not discriminate against any class of patients.(60) However, the draft guidelines are so broad that it could adversely affect current medical management, as well as discriminate against certain segments of the patient population.(61)
Additionally, off-label use and controlled substance monitoring could come under the auspices of the PBM via federal designation.(62) The former places the federal government in our exam rooms with patients and the latter puts PBMs rather than state medical boards or the DEA in an investigational role to monitor utilization. While both could be deemed helpful to prevent dangerous prescribing or illicit drug use, are PBMs the appropriate designation to be given such authority? Moreover, can we be certain their decisions are not financially motivated, rather than simply advocating for patient safety?
Another major issue is time. Formularies mean prior authorizations. One psychiatric group stricken with Medicaid formularies was spending the equivalent of 60 hours per week to do paperwork for prior authorizations only to have the majority of them denied. The appellate process was only for patients as it was a patient benefit. Physicians had no appellate right, leaving them helpless.(63)
Federal formularies mean state oversight, the Attorney General's office or the Bureau/Department of Insurance have no jurisdiction. Interestingly, private agencies providing insurance benefits in a state have not been held accountable to the State's Attorney General's office nor the insurance boards when they are contracted with state or federal vendors.(64) However, with precedent set by Medco and Caremark, as well as other PBMs being investigated and fined by state agencies, is immunity from investigation and prosecution for these agencies going to last?
Patients have been unsuccessful holding insurers or PBMs accountable for problems of non-coverage, but perhaps there is hope, even if it must be legally challenged to get there. If not, legislative oversight must be strong, detailed, and have full disclosure by the contracted agencies. Disclosure is not something the PBMs have welcomed arguing disclosure on drug pricing will cause them to lose their competitive edge.(65)
Touting savings of $1.3 trillion over the next decade, it is estimated that strict pharmacy management can free up resources for other funding priorities.(66) However, suboptimal pharmaceutical management has resulted in marked increases in other aspects of healthcare so the savings offered are appropriately questioned, as cost shifting to other columns (i.e.: ED visits, hospitalizations, specialist referrals, lab work or testing for complications) will likely occur.(67)
Furthermore, arguing a loss of $6.9 million per year, they oppose a nationwide ban on therapeutic interchange without physician consent.(68) That is, a patient could be switched to a therapeutically similar drug without our knowledge or permission. PBM representatives have assured the federal government and consumer groups this is not the case. Additionally, muddying the water is their lack of legal accountability if one of their therapeutic exchanges has an adverse or even deadly outcome.
Like its larger brother Medco, Caremark has come under investigation for its business practices.(69) Oversight by state and federal regulatory boards is paramount in order to allow for prompt accountability if medically appropriate appeals are denied. However, in order to allow for savings to occur, some autonomy must be given to the PBMs so they can provide the benefits for which they were contracted. A careful balance must be achieved, but it will not be easy.
Conclusion
As this article clearly shows, healthcare has become big business in this country. The finances involved give one pause to believe that patients are the primary focus for these organizations when shareholders and executive bonuses must be added into the equation.
Moreover, backroom deals on medication rebates with subsequent formulary development and implementation leave heads spinning and patients potentially without the care they need. While multiple State Attorneys General have successfully prosecuted and fined both insurers and PBMs, is that really helping or is it just a cost of doing business?
Furthermore, will these same prosecuted PBMs be held to the same standard once they are managing federal beneficiaries? A $30 million or even $40 million fine is a lot of money, but to a company with sales of $20-30 billion does it truly affect change or is it a proverbial slap on the wrist?
Neither patient nor physician can combat this alone. However, with consolidated efforts via the American Osteopathic Association, American College of Osteopathic Family Physicians, American Medical Association, state societies and national specialty organizations, we can and must be heard.
The insidious nature of the market share, sales and profits garnered by these industries is astonishing. More astonishing is how unaware most Americans are to this issue. Worse yet, we physicians, who are involved in dealing with insurers and PBMs everyday, have had no real understanding of what we are up against. However, as this article has detailed we are battling multinational, powerful organizations that are driven by profits whose legal accountability to patients is null.
In the face of PLI reform, the accountability of the PBMs and the insurers need to come to play. If they were to be legislatively held accountable for healthcare decisions, which many insurers and PBMs make everyday, our own liability would be lessened.
Moreover, their political influence could be used to swing the Congressional votes needed to get true, federal PLI reform made into law. That day may be very far off, but it will move ever closer and their responsiveness to the needs of our patients will improve if physicians understand the challenges, landscape and our abilities to fight for our patients to get the care they need. To do otherwise would be unconscionable.
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