CEO's Guide to Restoring the American Dream

by Dave Chase

  What is a High-Value, Transparent TPA?

  Third-party administrators (TPAs) charge a monthly fee for paying claims and performing other administrative functions for self-insured employers’ health plans. Administrative services organizations (ASOs) associated with large carriers perform similar functions.* However, a high-value, transparent TPA does more. It can transform health care benefits from a black-box line item that increases by double digits each year to a cost-center that you can actively manage and control. The value is evident in dramatic cost reductions that can be as high as 40-50 percent.

  As a result, more and more employers are looking beyond large, well-known insurance carriers and have instead embraced local, regional, or national TPAs to help them translate health care costs into known, actionable components.

  How Does It Work?

  Employers can choose whether to bundle the services they want in their monthly fee, depending on how engaged they want to be. Most high-value TPAs offer employers a range of provider networks (or no network at all, if you prefer) and integrate other innovative, third-party solutions to tackle costs and/or improve member experience.

  A high-value TPA researches the cost of health care services and recommends actions that employers can take to save money. The following chart, adapted from the Colorado Business Group on Health, illustrates how astute employers and their high-value TPA partners measure and act on their employee’s health care data.

  Why Should You Support It?

  Employers using high-value, transparent TPAs can actively reduce unnecessary health care costs while boosting the quality of health care services, thus improving the health and experience of employees and their families. If you are self-insured and purchasing care using, in part, your employees’ money, this should be the minimum fulfillment of your fiduciary responsibilities.

  Good health not only improves morale and productivity, it enables you to spend less on health care and more on growing your business. And employers have a unique ability to lead the change in health care that is so critical for the economy.

  Sticking with a big-name insurance carrier through an ASO may feel like an easy, safe way to provide health benefits to your employees, which it certainly can be. However, employers who choose to partner with a high-value, transparent TPA typically do so because they are sick of convoluted rules, data that aren’t actionable, opaque provider contracts, constant administrative runaround, and paying unknown and irrational amounts in exchange for services that don’t add value.

  A high-value TPA enables high-value primary care, concierge customer service, transparent medical networks, centers of excellence, and more. In sum, it enables control over health care costs.

  It’s the first step towards fixing health care in America.

  What Are the Key Elements to Look for?

  1. Health Care Cost Transparency

  Cost transparency means that the TPA helps you see how much you should be paying (the fair market price) for distinct services and price variance between providers. This can be achieved by standardizing prices according to regional benchmarks or Medicare pricing.

  2. Quality Data

  Having access to reliable data on hospital and/or physician performance is a necessary starting point for developing centers of excellence and other approaches to managing high-cost procedures. While quality data are still imperfect in health care, they are a necessary and valuable starting point for directing care. A high-value TPA will be adept at navigating the various sources of data.

  3. Utilization Data

  Health care utilization numbers without relevant benchmarks are useless. A high-value TPA will focus on appropriate use of services at the right time, right price, and right location or care setting. It does this by tackling underuse of primary and secondary preventive services for people with chronic conditions and overuse of low-value episodic treatments that are often not medically necessary.

  For example, the following list of low-value services was developed by the Oregon Health Council. A high-value TPA can help reduce these wasteful services.

  •Outpatient upper endoscopy

  •Outpatient MRI, CT, and PET screening

  •Spine surgery for pain

  •Orthopedic joint procedures

  •PTCA

  •Stents

  •CABG surgery

  •Nuclear cardiology diagnostics

  •Electron beam computerized tomography (EBCT/SPECT)

  •Hysterectomy

  4. Continuous Progress

  Every region and employer has similar but different challenges. Progress requires continued diligence and improvement over time. High-value TPAs recommend and implement solutions to further this goal—the work is never done.

  5. Positive Financial Outcomes

  Depending on the size and location of the employer, employee demographics, strategies implemented, and regional health care dynamics, financial outcomes may be immediate or unfold over time. For example, an employer investing in direct primary care may see increased costs in the first year as employees begin to work through delayed health issues and adopt healthier behaviors. Often these costs are recouped several times over in years two and three. It is also important to understand which costs can be influenced and which cannot. A high-value, transparent TPA may deliver tangible savings in utilization or unit costs even if you have an overall increase in health care expenditures due to a greater than expected number of high-cost events.

  6. Engaged, Satisfied Employees

  Saving money in health care requires employees to be educated, engaged participants in their health. Not all employees welcome this responsibility. However, the best TPAs build trust and empower individuals through education and reinforcement of good choices. Overall, they help save money and please employees at the same time.

  How Can You Ensure Quality?

  It may feel like you’re venturing into foreign territory. You’re not the first to act to get your employees and you a better deal, so reach out to those who have already benefited from using a high-value TPA, starting with other employers in your area. Here are some resources to help you navigate the path.

  Business Groups on Health are nonprofit organizations that support employers in purchasing and managing health care benefits.

  Catalyst for Payment Reform is an independent, national nonprofit organization for employers committed to a higher-value health care system that can help navigate complex changes in value-based payment models.

  What Challenges Can You Expect?

  1. Administrative Challenges

  Your broker, consultant, or benefits manager may be unable or unwilling to facilitate a true evaluation of TPA attributes (retention bonuses from ASOs being the primary reason).

  2. Employee Education

  A high-value, transparent TPA can sometimes feel like more of a change than employees are willing to undertake. Education about why you are tackling health care costs directly is critical to fostering more engaged employees.

  3. Fear of Change

  There is extraordinary inertia in health care. Most company benefits departments prefer not to rock the boat and stay with known vendors, even when they don’t perform.

  4. Advisor Conflicts of Interest

  Many brokers have undisclosed financial arrangements that favor the status quo and/or incentivize higher health care costs.

  What Action Steps Can You Take?

  Ask your broker, consultant, or local business group on health if they are currently working with or have experience with a high-value, transparent TPA.

  Encourage your broker, consultant, or benefits manager to arrange presentations from TPAs operating in your market.

  Revamp your RFPs and annual service provider evaluations to incorporate attributes of high-value, transparent TPAs. Ask your high-value, primary care provider which TPAs they like to work with.

  Review all responses to your RFP, not just the ones with the lowest quotes. Sometimes value is not appar
ent from just looking at the bottom line numbers.

  Additional Resources

  Please go to healthrosetta.org/health-rosetta for ongoing updates, including lists of high-value, transparent TPA organizations, case studies, best practices, toolkits, and more.

  _____________________

  * ASOs often refer to themselves as TPAs. For clarity, when I refer to TPAs, I’m referring to TPAs independent of large insurance companies. See Chapter 13 for a more complete explanation of the distinction between ASO and independent TPA.

  Chapter 18

  TRANSPARENT PHARMACY BENEFITS

  Transparent Pharmacy Benefits should offer purchasers the ability to gain control of decision making based on factual, fully disclosed information. Before we get started though, it’s worth noting that the term transparency is incredibly over-used in the market and not all transparency is created equal. It’s critical to look behind any impressive sounding terms to get to the real underlying issues that drive costs. I only use the term here for lack of a better one.

  Let's start with the key elements and goals of Transparent Pharmacy Benefits.

  1. It enables better decisions regarding pharmacy benefits by obtaining and using the data that a purchaser rightly owns.

  2. It provides identifiable and measurable metrics to assert pricing and operational control over Pharmacy Benefit Manager (PBM) services.

  3. It ensures members have relevant information to make informed choices.

  4. It ensures clinical decisions are based solely on efficacy and actual cost, thereby advancing the purchaser's best interests ahead of a vendor's best interests.

  Why Should You Support It?

  Supporting Transparent Pharmacy Benefits is positive for almost all parties involved. Reducing therapy cost encourages pharmacy benefit participants to become more engaged in their therapy. And there are literally thousands of opportunities where, with proper information and education, participants can make better financial choices and even improve the chances of a quality outcome.

  Tim Thomas, CEO of Crystal Clear Rx, gave the following example. Metformin, a drug for treating diabetes, has been around for decades and is a valuable therapy for treating the condition. It is a twice a day drug and can be obtained for less than $40 a month. Today, there are new formulations of Metformin that can be taken once a day, possibly improving patient adherence, but at a much greater cost to the participant and employer, over $3,000 a month. If the participant was educated and properly incentivized, would they be able to maintain adherence and reduce spending by nearly $36,000 per year? Pharmacists that have additional training and are paid appropriately for their time can help patients with this situation as well.

  How Does It Work?

  Compared to some Health Rosetta components, Transparent Pharmacy Benefits don't actually work much differently than what you're used to. The primary difference is the process for engaging your consultant or PBM services vendor. It focuses on contracts, access to data, and distribution channels for accessing drugs that counteract the pricing opacity, undisclosed financial incentives, and other conflicts that permeate status quo pharmacy benefits. The most critical piece is the role and involvement of an expert who knows the space top to bottom and has incentives aligned with your interests.

  What Are the Key Elements to Look For?

  1. Clarity on How PBMs Work

  PBM business models and revenue streams are often highly-complex and full of conflicts that make their incentives very different than yours or your plan members. To start, they are often incentivized to push certain prescription brands. Additionally, "rebates" can be misleading and may not result in actual savings. True transparency is needed. Rebates can be up to 25% of the total cost of a brand or specialty drug and rarely benefit the member as they are paid to the plan sponsor or health plan. Thus, PBMs use rebate incentives that benefit only the plan sponsor or health plan at the expense of the patient through increased drug costs at the point of sale. Plus, the definition of what is a rebate payable to the plan sponsor or health plan rarely aligns with the actual amount paid by pharmaceutical manufacturers to the PBM. True transparency means one can see the relevant contracts the PBM has with manufacturers and others.

  Some PBMs also employ pricing tactics that create "spread pricing" in which the amount charged to you and your members or a health plan is drastically higher than what is actually paid to the pharmacy. Spread pricing occurs across brand, specialty, and generic drugs. It's especially egregious in the generic component.

  2. Access to Your Claims Data

  Pharmacy claims data is some of the most robust and readily available in the health care industry, but first you need to get access to it, then fully understand and utilize it.

  Next, your PBM relationship and agreements should make clear that you own your claims data as the purchaser of services. This includes your right to use that data to make informed decisions. You should combine your data with other analytical resources to analyze the true cost of pharmacy treatments and not solely depend on information the PBM provides.

  Access to this data is essential to operating an effective ERISA plan. ERISA health plan service providers typically abdicate fiduciary responsibilities in their contracts with your plan. This means not getting data can increase your own risk under ERISA's fiduciary requirements to manage the plan solely for the benefit of the plan members.

  3. Complete Contract Understanding

  A complete understanding of current PBM contracts, utilizing a neutral third-party consultant, will ensure you have a clear understanding of current terms and conditions that are often the source of hidden costs. Even definitions left in OR OUT of a contract can be financially devastating.

  This is especially true when it comes to "guarantees" in the PBM-purchaser contract. Average Wholesale Price (AWP) with its associated "discount" is the common method for evaluating PBM financial performance. AWP really means "Any Wild- assed Price" or "Ain't What's Paid" to be less snarky. Because AWP is often confusing and misleading, it can reduce leverage in negotiations.

  Scott Haas, an industry expert, provided Figure 12 on the next page as an example of how AWP can and often does produce pricing variability to the plan sponsor and member. It is data from a real contract with a uniform AWP-68.5% discount for retail generics. First, notice the price per unit varies dramatically even though this is supposedly a uniform discount. Second, the unit costs rise over time. PBMs will say this is your cost trend, but it's often the PBM increasing cost basis to increase their spread (and revenue) over time. As a result, AWP-based discounts and metrics make it far harder to see or manage actual spending.

  Another issue is distribution channel pricing variability, such as mail order and specialty.

  The foregoing are just a couple examples of how the many moving pieces of PBM contracts, claims processing approaches, and business practices can make it difficult to manage spend. You need the right oversight and contract terms.

  4. Expert Resources

  Purchasers should pair their own data with unbiased consultants equipped with analytical know how, pharmacy industry knowledge, and vendor insight to negotiate better PBM contracts. Then they can decide for themselves if they should leave all of the PBM services with one vendor or if they should carve out certain aspects of the pharmacy benefit.

  Consultants who only work with PBMs that pay them disclosed or undisclosed fees should be avoided. Having the wrong economic incentives makes it nearly impossible to act in the best interests of their clients. Many PBM coalitions should also be looked at with suspicion because of the lack of overall transparency and potential fiduciary duty issues under ERISA. Follow the money before trusting any arrangement that doesn't let you view the contract between the PBM and Coalition sponsor. Without it, you can't fully assess whether that arrangement will truly provide you the value represented.

  5. Creative Distribution Channels

  What if mail order prescriptions are actually costing you mo
re than the same drug at retail? Seriously, this happens. When evaluating a PBM's channels, consider carving out mail order and specialty pharmacy services from the PBM contract. Some mail order and specialty pharmacies offer services for "cost plus a management fee," which can be far less expensive than the AWP "Ain't What's Paid" model. Plan design often drives whether this is a cost effective solution.

  What Challenges Can You Expect?

  1. The Appearance of Savings

  Consultants and PBMs will use AWP discounts that appear to create significant cost savings. Remember, AWP is a flawed metric for analysis that clouds true costs and any potential savings. A good analogy for this core flaw is what happens when you multiply percentages of percentages. The math guickly gets so convoluted that it just doesn't work well.

  During the RFP process, most consultants send your current pharmacy claims data to other PBMs, who then reprice the claims, showing you what you would have paid under their pricing (again, often using AWP). Since every proposal always has the appearance of savings, you'd think just doing an RFP each year would give you negative pharmacy costs eventually. Unfortunately, this isn't the case.

  The core problem with this is the flawed process. How much can you trust RFP responses when your consultant just gives your data to a potential vendor without controlling anything that occurs when repricing that data for the response? Because the actual repricing work is done by the PBM vying for your business, the consultant can't have any real confidence it's done correctly.

  Plus, very few consultants compare actual pharmacy claims to original RFP responses to ensure the original representations actually materialized in reality after the contract was signed.

  A better process is for your consultant to provide very basic summary information to PBM vendors about your plan, employees, total spend, prices paid through various channels, and other plan design elements. Then, they require PBMs to provide brand and specialty pricing, plus fixed per pill unit costs for generics (usually around 3,000 of them) that have some guaranteed pricing or utilize a MAC (Maximum Allowable Cost) list. Lastly, they will apply the responses to your actual data to create a cost avoidance summary that provides accurate and statistically validated cost saving potential (absent specialty utilization).