Avoiding Pitfalls in Pharmacy Purchasing1 National Accounts Customer Forum “Myth Busters”...

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National AccountsCustomer Forum

“Myth Busters”February 23, 2010

Common MedicalMyths

Avoiding Pitfalls inPharmacy Purchasing

UnderstandingNetworkDiscounts

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“Myth Busters”

Understanding NetworkDiscounts


Myths from theMedical Side

©2010 Aetna Inc. 3

Is your total medical cost picture missing something?

The most common pitfall of carrier/vendor selectionOverweighting a discount analysis in cost comparison and underweighting other critical cost factors

4©2010 Aetna Inc.

The whole picture: Discounts are only one small part of what determines your costs

Total medical costs follow a simple equation:

Medical and demand management

Provider networks and quality

Steerage to the right facilities; high performance networks

Contracted rates (discounts)

Provider cost, efficiency, and cost advantages (such as ePrescribing)

Volume (local market density)

Utilization X Unit Cost = Total Medical Claims Costs

Includes: Includes:

Your Your Your

Understand your unique total cost

picture with each carrier, not just one component.

5©2010 Aetna Inc.

Understand these four key components of cost to help avoid the pitfall

Network discounts

Site of service steerage

Provider cost, quality and efficiency

Medical management

Understand how these components impact your costs and know the right questions to ask.

©2010 Aetna Inc. 6

Where do typical discount comparisons fall short?

• Discounts used in comparisons are historic, yet most that impact your actual costs are forward- looking

• Differences in methodology used to calculate discounts can vary the outcome significantly

• Your organization’s unique provider mix and network makeup can also vary the discounts significantly

• Discounts don’t account for the effects of other cost controls, such as medical management and other cost/quality initiatives

7©2010 Aetna Inc.

Utilization mix by provider for your organization

You can experience substantially different discounts from the same provider simply as a result of changing

utilization mix.Sample Plan Sponsor Results with Hospital A:

2007 2008 2009Utilization Discount Utilization Discount Utilization Discount

Intensive Care 20 61.2% 9 74.2% 7 71.4%Med/Surg 182 65.6% 111 69.5% 90 68.0%Nursery 21 57.4% 1 60.9% 11 52.0%Obstetrics 30 62.3% 7 53.9% 12 37.9%Pediatric 9 75.3% 4 50.4% 5 40.0%Overall Discount 262 64.9% 136 69.6% 130 66.0%

©2010 Aetna Inc. 8

Disruption and how it impacts discounts due to provider mix

Actual discount customer achieves with Carrier B is much lower than expected because of the unanticipated disruption impacts

Common example: Customer switches to another carrier expecting the lower costs associated with a better network discount; disruption patterns change the cost picture.

Discounts Utilization

St. Elsewhere

Memorial Hospital

Mercy Hospital

Consultant’s database

50%

55%

20%

53%

half

half half

half

20%

60%

58%

59%

Carrier A Actual


Carrier B Expected

half

quarter

20%

60%

58%

49%


Carrier B Actual

quarter

9©2010 Aetna Inc.

Historic discounts don’t necessarily add up

Discount analysis data used for 1/1/2011 effective date

Actual discounts applied in a 3-year contract beginning 1/1/2011

Discount Years

2008, 2009

2011, 2012, 2013

AN

ALY

SIS

AC

TUA

L

1. Does your utilization pattern change from year to year?2. Have you made any plan design or contribution changes lately?3. Do you expect those to change employee behavior?4. Have there been changes in the hospital network?

©2010 Aetna Inc. 10

When it comes to site of service steerage, are you getting the guidance you need?

Proactive and effective steerage drives utilization

toward the more cost effective and higher quality

facilities.

11©2010 Aetna Inc.

Site of service steerage initiatives can have a significant impact on your costs

Submitted Charges

Facility B $892 $639 28%

Facility AA $2,544 $1,145 55%

Allowed Charges

Resulting Discount

FacilityOne example: Ambulatory surgery endoscopy

Achieving lower costs is your real objective. Discounts shouldn’t be the only focus when reducing costs is the ultimate goal.


Site of service steerage initiatives: Ambulatory surgery endoscopy

$892

$1,0

00

$1,0

00

$1,5

00 $1,8

02

$1,9

12

$1,6

40

$1,7

82

$1,3

98

$2,3

71

$2,3

71 $2,5

44

$639

$650

$650

$618

$811

$860

$660

$633

$783

$1,8

26

$1,8

26

$1,1

45

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

B C D H J K T U P Y Z AA

Ave

rage

Bill

ed /

Uni

t

Average Billed / Unit Allowed/Unit

Select Facilities: 47% DiscountAvg. Contracted rate = $693

Non-Select Facilities: 49% DiscountAvg. Contracted rate =$1304


When it comes to provider cost, quality and efficiency, is something missing?

Providers vary significantly when it

comes to cost, quality and efficiency measures. How do carriers work actively

with providers to get results?

14©2010 Aetna Inc.

Provider cost, quality and efficiency within the network

Providers vary significantly when it comes to cost, quality and efficiency measures

Providing feedback to providers is critical to affect change in their behavior– Provider access to member PHR information– Member-specific health improvement alerts – Provider payment estimator– High performance networks – Performance-based networks

15©2010 Aetna Inc.

Provider cost, quality and efficiency within the network

Increasing member engagement is also key to driving compliance and ultimately impacting quality and costs

– Personal Health Record– Health improvement alerts– Value-based plan designs– Consumer-directed health plans– Member transparency tools


The bottom line… managing total costs is the key to real savings

• Focusing on only network discounts misses the big picture of managing your total costs

• An effective trend management strategy should also actively account for the carrier’s approach to:

– Provider efficiency & quality– Medical management– Site of service steerage

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“Myth Busters”


Common MedicalMyths

UnderstandingNetwork

Discount


Industry Lingo: Drug Types

* Aetna Health Connections Disease Management Performance Summary – Aetna Health Analytics Study, March 2008

** Aetna Health Analytics Study, 4th Quarter 2007

• National Drug Code (NDC)• Brand

– Single Source– Multi-Source

• Generic– Single Source– Multi-Source

• Specialty Drug


Retail Discounts: generic or brand?

• Retail Discounts– When is a Brand a Brand?

• Definitions read the fine print (maybe as defined by MediSpan or FirstDataBank, etc)

– When is a Generic a Generic?• Single source generic or multi-source generic.• Where is the discount guaranteed

– Why is this important?• Is it included in the guarantee?• Savings from SSG’s might be insignificant


Retail Discounts: What is really discounted?

• Retail Discounts– MAC list and retail

• MAC often does not include single source generics, multi-source brands or other savings opportunities

• Can be unclear which MAC list is being utilized– Multiple MAC lists

– Zero Balance Claims, the inflated truth• $4 generics• Adjudication of ZBC allows for credit for AWP-100%• Inflates generic discounts


Rebates and Mail Discounts

• Mail order rebates and discounts– Minimum days supply requirement to qualify for discounts

• 45 day supply minimum• If minimum day Rx is not met then adjudicated at retail rate with

retail rebate guarantee– Package size considerations

• 1000 vs. 100 providing deeper discounts

– Is repackaging being used to inflate discounts?– Minimum copay or reimbursement

• Are your members going to pay more?


Other Hidden Exceptions and Fees That May Exist

• Rebate guarantees– Days Supply requirements to qualify

• Average day supply 30/90– Closed formularies

• Contingent on Step Therapeutic and Therapeutic Interchange

– Brand only rebate guarantees• Brands include all Rxs produced by 2 or less

manufactures, excluding specialty.


Other Hidden Exceptions and Fees That May Exist

• Mandatory Mail Conditions– Implementation fees– Per household letter fee

• General Financial Guarantees– Carry over for over performance– Based on coalition level and not individual level

• Data Sharing Feeds to Medical Vendors• Fees for clinical programs beyond the most basic

interventions


Pharmaceutical Price Increases & Medical-RX Interdependence


Pharmaceutical Pricing Increases

• Brand name drug manufacturers are escalating prices to increase earnings

• Industry is experiencing a price increase of 14.5% higher than prior years1

• Brand name drugs are becoming too costly to cover

1 2008 Lehman Brothers Drug Price Survey for top 100 drugs

– Offsetting the value of discounts andrebates

26©2010 Aetna Inc.

Manufacturer drug pipeline less robust than prior years

Changes in life-cycle management

Market economics

Increased pressure on manufacturers to deliver promised earnings to shareholders

HCR!

What are the factors that influence drug price increase?


Price Protection Strategy

• Price Predictability – Creates a provision in the rebate agreement that “caps” the percentage of price increase that is allowed on an annual basis.

• Approximately 50% of negotiated contracts for 2009 include Price Protection or incremental rebates– 2008 - 6.8% of brand drug spend is price-protected (25% of rebates)– 2009 – 15.6% of brand drug spend will be price-protected (38% of

rebates)

• To date, we’ve met with 31 manufacturers to discuss price predictability as a solution


Questionable prescribing….

FDA calls for limits on asthma drugsThe agency's guidance affects Serevent, Advair, Symbicort and Foradil.

Manufacturers will be required to include warnings on their labels.www.latimes.com,, February 19th, 2010


Gaps in care Over 50% of all related to drug use!

14.3%0.1%

5.8%5.8%

1.7%

19.6%

4.1%

29.8%

0.9%

18.0%

Add/Intensify Medical Therapy

Drug-Drug Interaction

Diagnostic Workup

Condition/Drug Monitoring

Modify Lifestyle

Stop/Modify Drug

Alternative Medicine Interaction

Condition Screening

Vaccination

Food-Drug Interaction

30©2010 Aetna Inc.

Questions and Answers

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National AccountsCustomerForum

“Myth Busters”

Common MedicalMyths

Understanding

Network

Discount



Researchers at the University of Michigan Health Management research center indicate that as employee risks go up or down, the change in costs to a company follow in the same direction*

ROI Employer Studies– PacBell: $3.10/$1– Wisconsin School District Insurance Group: $4.47/$1– Prudential Insurance: $2.90/$1– General Mills: $3.50/$1– NASA found 12.5% improvement in productivity in exercising office workers– The DuPont Corporation had a 14% decline in disability days vs. 5.8%

decline for controls (there were a total of 11,726 fewer net disability days)– General Mills found a 19% reduction in disability days– GE reported a 45% decrease in absenteeism.

*The Ultimate 20th Century Cost Benefit Analysis and Report, University of Michigan Health Management Research Center, March 2000

Myth #1 Wellness programs are not cost effective


Participants in Aetna’s Wellness Counseling program were:– 46 percent more likely to reduce their body mass index– 67 percent more likely to reduce their health assessment modifiable risk

score– 48 percent less likely to have the risk of inadequate exercise– 46 percent less likely to have the risk of high fat consumption

Myth #1 Wellness programs are not cost effective

34©2010 Aetna Inc.

Wellness Programs Best Practices

Develop a corporate culture of health with “C-suite” commitment

Link wellness to business objectives

Communicate frequently and by multimedia

Tie Incentives or disincentives to participation

Use Health Risk Assessments to understand population risk and drive wellness engagement

Measure results by engagement, risk reduction, direct and indirect costs


Myth #2 Higher Cost = Higher Quality

Higher volume of care does not produce better outcomes

• Higher-spending regions– Have more hospital beds (especially ICU)– Have more physicians overall, and more specialists per capita – Are hospitalized more frequently– Spend more time in the ICU– See physicians more frequently– Get more diagnostic tests than identical patients in lower-spending

regions


Myth #2 Higher Cost = Higher Quality

Higher unit cost does not produce better outcomes

Lower back MRI without dye using Aetna Navigator cost of care tool• Free standing radiology facility = $400• Hospital radiology = $1675-$2010

Uncomplicated caesarian section using Aetna Navigator cost of care tool• Hospital #1 = $8,691 - $10,099• Hospital #2 = $11,489 - $13,760

Fisher ES, Wennberg DE, Stukel TA, Gottlieb DJ, Lucas FL, Pinder EL.The implications of regional variations in Medicare spending. Part 1: the content,quality, and accessibility of care. Ann Intern Med 2003;138:273-87; Baicker K, Chandra A. Medicare Spending, The Physician Workforce,And Beneficiaries’ Quality Of Care. Health Aff (Millwood) 2004; Fisher ES, Wennberg DE, Stukel TA, Gottlieb DJ. Variations in the longitudinalefficiency of academic medical centers. Health Aff (Millwood) 2004;Suppl Web Exclusive:VAR19-32; . Fisher ES, Wennberg DE, Stukel TA, Gottlieb DJ, Lucas FL, Pinder EL.The implications of regional variations in Medicare spending. Part 2: health outcomes and satisfaction with care. Ann Intern Med 2003;138:288-98.

37©2010 Aetna Inc.

Plan design that promotes efficient utilization– Consumer directed (Aetna Health Fund)– High performance networks (Aexcel) mandatory or with

incentives

Promote use of Aetna Navigator tools

Communication

Cost/QualityBest Practices


Myth #3 Nature Trumps Nurture in Disease Development

• Diseases purely due to genetic factors:– Cystic Fibrosis– Hemophilia– Sickle Cell Anemia

• Diseases with genetic predisposition– Diabetes– Cardiovascular disease– Cancer


• “Noninherited factors play a greater role in increasing a person's susceptibility to cancer than inherited factors”

• “…environmental factors' are the primary determinants of most cases of cancer…such as tobacco use, diet and exercise habits, reproductive characteristics, infectious

agents and medication use.”


New England Journal of Medicine July, 12, 2000


Cardiovascular Disease– Non-Modifiable Risk Factors

• Age• Gender• Family History

– Lifestyle Factors• Smoking: 2x-4x risk of nonsmokers• Cholesterol: higher cholesterols=higher risk• Blood pressure: higher BP=higher risk• Others: obesity, diabetes, physical inactivity, heavy alcohol use,

reaction to stress



Participants in Aetna’s Wellness Counseling program were:– 46% more likely to reduce their body mass index– 67% more likely to reduce their health assessment modifiable risk score– 48% less likely to have the risk of inadequate exercise– 46% less likely to have the risk of high fat consumption


42©2010 Aetna Inc.

Incent Health Risk Completion– Informational– Drives engagement in Wellness (traditional and online) and

Condition Management programs

Worksite initiatives– Communication– Biometric screening– Wellness challenges

Aetna Navigator

Nature Trumps Nurture in Disease Development Best Practices


Are You At Risk Of Breast Cancer?

Family History

Genes

Estrogen

Reproductive History

Weight

Environmental Factors

Alcohol


Aetna Smartsource. Medical Content Reviewed by the faculty of Harvard Medical School


Myth #4 Primary Care is “Passé?”

• Definition - Basic or general health care usually provided by general practitioners, family practitioners, internists and pediatricians

• Primary care is a term used for the activity of a health care provider who acts as a first point of consultation for all patients. Continuity of care is also a key characteristic of primary care

• The level of care that encompasses routine care of individuals with common health problems and chronic illnesses that can be managed on an outpatient basis


Value of Primary Care

Evidence for Effectiveness:• People live longer and fewer die due to heart and lung disease• Less ER and hospital use• Fewer tests• Better preventive care• Reduced health disparities• Lower medication use• Less care related costs• Higher patient satisfaction

Greenfield S, et al JAMA 1992;267:1624-30.Forrest CB. Starfield B. JFP:. 1996;43(1):40-8.Macinko J. Starfield B. Shi L. HSR. 2003;38(3):831-65

46©2010 Aetna Inc.

The patient‐centered medical home is a model for care provided by physician practices that seeks to strengthen the physician‐patient relationship by replacing episodic care based on illnesses and patient complaints with

coordinated care and a long‐term healing relationship*

*As defined by NCQA

Aetna Pilots in PCMH Program Elements

• 11 pilot partnership with physician practices in 9 states

• >350,000 members• 3 year demonstration project

• Managing and coordinating patient care

• Patient care coordinator in practice• Reimbursement for additional

services• Accreditation and quality

improvement measures of success

Patient Centered Medical Home


Myth #5 Cellphone Radiation is harmful

WSJ reports that cellphone radiation actually may protect or reverse Alzheimer's in mice.

Avoiding Pitfalls in Pharmacy Purchasing1 National Accounts Customer Forum “Myth Busters”...

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