March 21, 2003

"Private Sector Health Care Management Techniques"

The Alliance to Improve Medicare (AIM) and the Progressive Policy Institute (PPI) hosted a Congressional staff briefing to discuss the need for pharmacy benefit and disease management (DM) programs in a modernized Medicare program. Panelists included Dr. Kenneth E. Thorpe, Professor and Chair, Department of Health Policy and Management, Emory University; Ms. Carol McCall, Director, Center for Health Metrics, Humana; and Mr. Terry Latanich, Senior Vice President, Government Relations, Medco Health Solutions.

Tracey Moorhead, AIM Executive Director, noted that Medicare currently focuses on acute care and covers few preventive benefits or care management programs.  She further stated that current statutory restrictions and payment/reimbursement systems make integration of disease management and pharmacy benefit management programs difficult.

Dr. Thorpe stated that a major part of the Medicare debate must focus on transforming the program to provide better care for beneficiaries.  He noted that 87 percent of current Medicare beneficiaries have at least one chronic condition.  Further, 20 percent of beneficiaries have five or more chronic conditions and account for 66 percent of total Medicare spending. Dr. Thorpe listed four specific conditions most common among the Medicare population: congestive heart failure/cardiovascular disease, diabetes, hypertension, and cancer. 

Dr. Thorpe outlined the key elements for a DM program model including early identification of at-risk patients, use of evidence based guidelines, use of multi-disciplinary teams (including physicians, nurses, and therapists), coordinated care, patient involvement and education, information systems for monitoring, and outcomes measurement.  He then outlined various levels of monitoring activities and described a fully integrated, population-based, chronic care case management model.

He stated that the goals of effective DM should be crisis avoidance through monitoring and resolution of potential problems before they occur. Finally, he described challenges for DM integration into Medicare including identification of disease management candidates in traditional Medicare, enrollment processes, and payment/reimbursement restrictions.  He noted that Medicare must first provide coverage for services necessary for chronic care, develop evidence-based models with physician and provider input, develop information technology platforms for identification and monitoring, and include physician education as part of GME.

Ms. McCall outlined Humana's long-term experience with both Medicare and DM programs.  She noted that Humana has been a Medicare provider for 17 years and currently serves 330,000 beneficiaries.  Humana has developed five DM programs specifically for the Medicare population, with each program realizing significant impacts.

Ms. McCall stated that DM programs work to reduce adverse events, improve patient outcomes and satisfaction, and reduce health care costs. She noted that active and early patient enrollment is critical.   Humana uses multiple sources of information to identify and target beneficiaries for enrollment including self-reporting, utilization management reports, and medical and pharmaceutical claims data. She further noted the need to create strong links between targeting and enrollment.  Ms. McCall then outlined the positive impacts of Humana's DM programs.  Specifically, a coronary artery disease management program reduced average health care costs per beneficiary up to 17 percent over beneficiaries with similar conditions who were not enrolled in the DM program. A congestive heart failure DM program resulted in a 55 percent decrease in emergency room visits, a 62 percent decrease in hospital admissions and an overall reduction in health care costs per beneficiary of nearly 50 percent.

Mr. Latanich stated that the existing drug delivery system is the most technologically advanced system in health care.  He noted that pharmacy benefit managers (PBMs) cover over 200 million individuals and annually account for over 2 billion prescriptions.  He noted that PBM's core capabilities include development and administration of formularies, negotiation of drug manufacturer rebate contracts, maximization of generic drug use, drug utilization management, physician prescribing practice profiling, pharmacy network contracting, and health management programs. PBM health management programs, according to Mr. Latanich, are typically less "invasive" than health plan programs and rely more upon education and self management. 

Mr. Latanich described various types of formularies including open, multi-tiered and closed formularies.  He noted that the goal for any formulary is to offer the lowest net cost for a particular class of drug.  He further noted that generic drugs are preferred on all formularies.  He stated that Medicare will need to develop a very aggressive formulary to control costs and to ensure beneficiary awareness of the cost of drugs.

Mr. Latanich then outlined the findings of a recent GAO report on PBMs in the FEHB program.  GAO concluded that the PBMs studied saved, on average, 18 percent on brand name drugs and 47 percent on generic drugs through manufacturer rebates and formularies.  Mr. Latanich noted that GAO's baseline was what seniors would have paid for identical drugs with no drug coverage versus what they were charged through PBM programs.  GAO also reported that the PBMs offered patient safety programs that reduced dangerous drug interactions in cases where patients used multiple doctors and pharmacies.

Mr. Latanich then outlined "the truth about drug manufacturer rebates" negotiated by PBMs and stated that such rebates significantly reduce the cost of drugs for health plans and employers.  Mr. Latanich stated that the level of rebates is driven by benefit design, formularies, and cost-sharing programs. Mr. Latanich stated that PBMs use rebates to defray the costs of expenses which they cannot pass along to health plans, including administrative fees for claims processing, pharmacy network management, data analysis, client support, or mail dispensing.  Further, he noted that health plans specifically negotiate the amount of rebate savings that the PBM will pass-through to plan members and how much the PBM will retain for itself. 

Finally, Mr. Latanich noted that the biggest issue in controlling a Medicare prescription drug benefit is whether to control the price of drugs using private market forces or price controls. He stated that negotiated drug manufacturer rebates are the principle market based alternative to government imposed price controls.  Mr. Latanich noted that the Departments of Defense and Veterans Affairs, Medicaid, and the proposed CMS discount card all rely on rebates to make a drug benefit affordable.  He further noted that all CBO scoring of drug benefit costs assumes rebates will be obtained from drug manufacturers.  Mr. Latanich stated that PBMs can manage a Medicare drug benefit but that they must be given the appropriate tools, including rebates, to be successful.

An audience member asked if PBMs and health plans were actively encouraging Congress to include pharmacy and disease management techniques in Medicare legislation or if they planned to rely on the private sector to integrate these programs.  Panelists agreed that Congress should allow all providers latitude to use successful, proven techniques to better manage care.

Another audience member asked Dr. Thorpe what changes would be necessary in the Medicare benefit package to truly incorporate disease management. Dr. Thorpe responded by recommending changes in Medicare payment rules to allow direct payment to providers for specific disease management functions including preventive screenings, telephone case management, etc. He also noted that CMS should allow payments to outside vendors to manage or organize such programs. Finally, he stated the importance of these changes for both traditional Medicare and Medicare+Choice.

Panelists were asked to comment on incentives to encourage beneficiary compliance with disease management programs. Dr. Thorpe responded that physicians must be involved in the development and on-going management of such programs because they are necessary to promote DM programs to eligible patients.  Ms. McCall noted that Humana has had success in encouraging beneficiary enrollment by offering flexibility and choice, including a "Personal Care Account" which allows consumers to spend a set amount of money on health care services they desire.  This program is combined with beneficiary education services to help patients better understand the consequences of their health care choices.

Finally, panelists were asked if physicians should receive additional financial incentives to participate in DM programs.  Dr. Thorpe responded that some mechanism is necessary to make sure physicians have resources to follow through with such management programs. He noted that the current "piecemeal" payment systems offers few opportunities for physicians to follow through with patient care.