If you thought that the recent purchase of the large pharmacy benefit management company (PBM) Catamaran by UnitedHealthcare was a real yawner, you may want to think again. This news has significant ramifications for new payment models and for the efforts by Medicare and CMS to enlist a value-based medical system. How so, you say?
This purchase was a short-term endorsement of the cost/price model within which we now operate. Physicians are paid to escalate care as more services equal more pay. It’s the old fee-for-service syndrome. With the advent of the Affordable Care Act (ACA) and efforts by CMS to move toward a value-based (read outcome-based) payment methodology, this purchase signified a large step backward. If all the noise around quality is true and the future holds for us a performance- or improvement-based methodology for patient care, then why is the largest health insurer capturing
a company that built its entire business model on the cost/price environment? Over time, it may become more difficult than we thought to move the metric away from the fiscal “lowest price gets
the business” model that we now have.
The more cynical audience may say that CMS’ efforts to move toward a value-based system are a desperate attempt to divorce it from the fee-for-service model in which it is trapped. It’s true that Medicare recipients are a fee-for-service target and that the more procedures one performs the
more revenue escalates. There is no requirement that the patient actually gets better. It’s all about the services rendered, and billed.
So the United/Catamaran deal is a vote of confidence for the cost/price model – maintaining that fee-for-service mentality that CMS wants to dispose of. And it’s not just CMS, as the fee-for-service environment does nothing to mitigate risk for commercial insurers. Just paying claims does not mean that you can avoid a catastrophic event or the long-term costs of a chronic illness. Everyone has a vested interest in moving toward a quality model. So am I saying that PBMs don’t really care about the patient? Let me give you an example:
Back in 1996 the midsize manufacturer company Pitney Bowes, came up with a unique way to lower health care costs and improve employee health care. The idea was the brainchild of the company’s medical director and benefits manager – simply remove all pharmaceutical barriers for three chronic disease states and make medicines more available by removing co-pays. So they approached their PBM (which was Express Scripts at the time) and ran the idea past them. Express Scripts wanted nothing to do with this venture. They saw this as affecting their bottom line when it came to rebates with manufacturers, and found no way they could demonstrate any fiscal savings to Pitney Bowes.
A contentious battle raged for a few months and finally Pitney Bowes decided to cancel its contract with Express Scripts. Amazingly, Express Scripts capitulated the next day. According to data supplied by the National Business Coalition on Health (NBCH), Pitney Bowes did increase its pharmacy benefit budget the first year by $1 million. But overall the entire benefit offering saved the company $3.5 million, by lowering hospital admissions and reducing catastrophic events for the chronic illnesses of diabetes, hypertension and asthma. Giving employees easier access to the medicines that prevented disease also prevented a high risk event from occurring. All this occurred much to the dismay of Express Scripts. If your business model is entirely built on cost/price, then any deviation from that creates a significant risk to your livelihood.
So what will be the outcome, with the move toward quality care, episode of care management and the famous CMS program of “shared savings”? Well, with this merger, I think that the battle just intensified to a war. How is CMS going to read the fact that the largest health care insurer in the country just stuck a stick in their eye when it comes to quality of care metrics? It’s obvious that United Healthcare does not believe that the outcome-based model stands much of a chance, at
least not in the short term. The unanswered question is: Will the status quo win out in this war of wills? And it’s more than wills – it’s big dollars. Will a big dollar environment of the cost/price purveyors win out? Will the puny penalties that CMS is going to impose for not following quality guidelines have enough horsepower over time to move us to a more patient-centric model?
Some news organizations that reported on this merger ignored these questions completely. And
if you think about it, there probably is more interest in maintaining a cost/price environment than doing away with one. Nearly every health care supplier including pharmaceuticals has built its model on cost/price. Health plans have created entire revenue streams from pharmaceutical rebates, and have found ways not to comply with any of the qualifying metrics for the discount. And yet we are very tied to this cost/price environment.
The entire “lowest price gets the business” mentality has nothing to do with patient care. The main concern is the cost of drugs and maintaining a silo-ed budget.
I will give you another example: In 2006/2007, AON Health Sciences Division did a number of
cost-effectiveness studies in regard to the impact of lowering total cost of care versus preserving a pharmacy budget. The data in the 2007 study showed that if one compared a branded, injectable, anti-bleed medication that cost $25 a day, to unfractionated heparin (a generic) at $2.81 a day,
the actual episode of care actually cost was more for the generic due to required labs and longer titration time that required multiple visits. The AON study concluded that the average hospital could save over $4 million by not using the generic heparin and using the branded pharmaceutical. Not only was the episode of care cost lowered, but also risk was mitigated, as there were fewer side effects and readmissions, with higher patient compliance. This is a perfect example of quality/performance versus cost/price.
However, only part of our industry recognizes that you can manage risk this way. We see significant improvement in pharmacy helping the entire medical enterprise within integrated delivery systems (IDNs), but we also see that the budget silo remains intact within the health plan environment,
where all those healthy rebates occur. So who will win? Will the patient win with better care and better outcomes? Or will it remain a cost/price battle, and the patient be damned?
I’ve talked to one key opinion leader who felt that this was just a short-term move – that United knew full well that someday it would have to show up to the dance when it comes to quality, but as long as we are in the price environment, it wanted to take advantage of it. I don’t know that I’m that optimistic about this. What concerns me is that we have a commercial insurer that is saying it can capture higher revenue in the cost/price world than by mitigating risk, and by lowering episode of care costs regardless of the impact on pharmacy.
The patient may have the last say in all of this. As risk gets pushed down to the patient, they are forced to pay more attention to medical purchases and drug spending, based on the fact that they are being fiscally impacted. If – and I submit to you, it’s a big if – consumerism really takes hold
in health care, then the giants of the cost/price side of the equation will have to rethink their own
value proposition. It’s not just CMS that has a stake in quality improvement. Major insurers that
do not mitigate risk or prevent catastrophic costs are going to be out of the game.
We just don’t know when this will happen.