Group Chap 23: Estimating Pharmacy Claim Costs Flashcards
Introduction
Prescription drugs are becomming an increasingly important part of the health care system. In 2018. they accounted for 10% of total health insurance spending ($335 billion). By 2027, this is expected to grow to $577 billion.
Data Considerations
- Typically collected electronically when prescription is filled
a. Validated at point of service, so often more complete and accurate than medical data - Pharmacies and PBM perform safety screening and drug utilization review (DUR) prior to dispensing the prescription
a. Verifies compliance with prior authorization, step edit and quantity limits, as well as potential for adverse reactions - Claims Typically processed at point of sale (much faster than medical claims)
a. Short lag (usually submitted every two weeks)
b. Results in good data for data analytics
1. Data Sources
a. Numerous sources
- Insured’s group experience is usually the best source, if credible
- Other sources - data vendors, Centers for Medicare and Medicaid Service (CMS) and consulting firms
b. Variability in when people fill prescriptions
- More common on Mondays and less likely on holidays
- Seasonality should be included in projections of pharmacy claims
2. Key Data Fields
a. Data files typically include one row (record) per prescription
b. Standard format is set by National Counsel for Prescription Drug Program (NCPDP)
c. Typical pharmacy Data Fields
- Age, Gender, Date of Birth;
i. Important for demographic based analysis
ii. Usually grouped by gender and age bands
- Fill Date
i. Date the calimant received the prescription. Typically assumed to be the incurred date for the claim - Claim ID
i. Unique identifier assigned to each claim - Prescribing Provider ID
i. Unique code to identify the prescribing physician - Pharmacy Provider ID
i. Unique code to identify the pharmacy that dispensed the drug - Drug Name
i. Either the brand name or generic name (generic is typically the name of the chemical compound)
ii. Critical that consistent source is used to avoid using different names for same drug
iii. Also must be aware of abbreviations to identify drugs or compounds - Tier
i. Numeric value corresponding to the member cost sharing amount described within plan documents - National Drug Codes (NDC)
i. 11 Digit code to indicate manufacturer
(1) First 5 digits indicate manufacturer
(2) Next 4 digits identify drug name and dosage
(3) Last 2 digits indicate the packaging
ii. NDCs vary by dosage and quantity, so there are multiple NDCs for the same drug name
iii. Mapping of NDCs can be obtained from data vendors - Days Supply
i. Number of days supply of a prescription drug
ii. Typically 30-day, 60-day or 90-day categories; 30-day may be broken into “partial fills” for less than one month supplies - Units
i. Number of pills or a measurement of volume for liquid medications - Allowed Amount
i. May also be called “gross cost”, “discounted cost”, “allowed cost” or “discounted allowed amount”
ii. Amount that is charged for the drug and typically includes four components
iii. Allowed amount components:
(1) Discounted Ingredient Cost - cost of drug after negotiated discouts (discounts typically negotiated by PBM)
(2) Dispensing Fee - fee charged by pharmacy to fill prescription
(3) Vaccine Fee - cahrge for administering vaccines
(4) Sales Tax - only a few states require sales tax for prescription drugs - Refill Indicators
i. Number of refills without requiring a new precription will be given
ii. refill indicator identifies which fill was dispensed - Member and Plan Costs
i. Allowed amount is paid for by either member or claimant, third party payer (insurer or employer), or a combination of these two
ii. Amount paid by plan is “plan liability” - typically doesn’t reflect reduction in cost due to rebates
(1) Plan liability that includes reduction for rebates is “net plan liability”
(2) Rebate information typically not included in drug claim datasets and must be attained separately from PBM - Therapeutic Classes
i. Categorizes drugs by conditions that the drugs are intended to treat
ii. American Hospital Formulary Service (AHFS) develop 8 digit classification system
iii. Play a key role in pharmacy analytics - May be savings opportunities for the plan if members switch to different drug company - RxNorm Concept Unique Identifier (RxCUI)
i. 7 digit code to create a standard nomenclature for clinical drugs based on ingredients, strength and form of the drug
ii. Developed because different organizations use different names for the same drug
iii. CMS adopted the use of RxCUI for Medicare Part D - Generic Product Identifier (GPI)
i. 14 digit code assigned by Medi-Span to classify drugs into hierarchy from drug group down to specific strength
ii. Identifies class, sub-class, name and dosage
3. Methods of Counting Utilization
a. Units can be expressed in terms of number of prescriptions, days supply, dosage or number of pills
- Script counts and days supply are most common
b. In data file one record per prescription
- Each script received is one “raw” script
c. “Normalized” script counts are normalized to a monthly basis for scripts for multiple months
- i.e. 90-days supply would count as one raw script but three normalized scripts
d. In some systems, retail and mail scripts are normalized
e. In other systems, only retail scripts are normalized
f. Normalization helps to appropriately calculate metrics on a per script basis
- E.g. Member A has 3 claims for 30-day sipply at $120 per fill. Member B has 1 claim for 90-day supply at $360 per fill
- Raw script method - Member A cost per script = $120. Member B cost per Script = $360
- Normalized script method - Member A cost per script = $120. Member B cost per script = 360/3 = $120
Calculating Premium
Basic Concept is similar to medical benefits
a. To Determine Net Plan Liability
- Project expected claims cost
- Apply member cost sharing
- Apply rebates
b. To Develop Premium Rate
- Add expenses and profit margin
1. Allowed Cost Trend Development
a. First project base period claims to the rating period and account for all changes between the two periods
b. Items that impact allowed cost trends
- Unit cost change - changes in average wholesale price (AWP) of drugs and new drugs entering market
- Utilization Change - changes in formulary management (prior authorizatio, step therapy, quantity limits), access to prescription ddrugs and new drugs entering market
- Mix Change - changes in types of drugs used (i.e. shift from brand to generic drugs)
c. Trend should consider historical trends and expected changes as noted above
2. Important Rating Factors
a. Rating Factors for Pharmacy Costs
- Demographics - types and quantities vary by age and gender
- Area - Costs and utilization vary by geographical region
-
Benefit Design - changes in benefits and cost sharing affect number of prescriptions
i. Impact of benefit deisgn on drug use is called induced utilization
ii. Change in medical cost sharing can also affect this. less visits to the physician leads to less prescriptions -
Formulary - list of covered drugs, tier placement of drugs, formulary management programs and brand patent expiration
Formulary Management Programs
(1) Prior Authorization
i. Approval from PBM prior to filling a prescription
ii. Most restrictive method
(2) Step Therapy
i. Patient must try a different drug or series of drugs before getting coverage for drug in question
ii. Tries existing drugs before treatment with newer or costlier drugs
(3) Quantity Limit
i. Restricts number of days supply or number of units
ii. Done as a safety measure, to avoid waste or as cost savings measure -
Contracting (discount and dispensing fees) - discount (reduction of cost that pharmacy will provide from the AWP) and dispensing fees are negotiated with pharmcies by PBM
i. Discounts and dispensing fees may change due to pharmacy network or negotiated contracting terms
ii. Discount = 100% - Ingredient Cost / AWP
iii. Ingredient Cost = Allowed Amt - Dispensing Fee - vaccine Fee - Sales Tax - Other Factors - Changes in mail order utilization, changes in generic dispensing rate, or changes in utilization management
b. Some of these factors will be accounted for in pharmacy trend, so it is important not to double-count or miss these factors in the analysis
3. Determining Expected Member Cost Sharing
a. How much of the allowed cost is to be paid by the member
b. Claim Probability Distributions
- Used to value the deductible and overall plan design
c. Cost per Prescription Tables
- Values nominal versus effective copays
- E.g. $10 member copay. If the cost of the drug is less than $10, the cost of the effective copay is simply the cost of the drug
- If full value of nominal copay were deducted from allowed cost, plan liability would be underestimated
4. Determing Net Plan Liability and Premium
a. Expected Net Plan Liability = Projected Allowed Amount - Expected Member Cost Sharing - Expected Rebates
b. Rebates typically estimated on percentage of gross cost of per script basis
c. Premium = Expected Net Plan Liability + Expenses + Profit Margin
5. Analytic Pricing Considerations
a. Timing of Rebates
- Rebates are initially paid from the manufacturer to the PBM and then from the PBM to the plan
- Plans typically collect rebates from PBM quarterly or semi-anually
b. Credibility
- Plans may not have sufficient experience for projecting future claims, so they could rely partially or fully on a manual rate - Done using a credibility factor to weight plan experience and the manual rate
c. Integrated Plans
- Many plans integrate pharmacy and medical benefit designs
- E.g. plan may have single deductible or maximum for medical and pharmacy
- Creates a challenge in pricing medical and pharmacy separately
d. Fixed Cost Leveraging
- Trend in plan liability wil be greater than trend in allowed costs whenever deductibles or copays are part of the plan design. i.e. Plan liability increases faster than allowed costs if member cost sharing stays the same
- E.g. Expected cost = $1000, member ost sharing = 200. Expected plan liability - 1000 - 200 = 800
- If allowed costs increases 10%, plan liability - 1100 - 200 = 900
- This represents a 12.5% increase in plan liability (higher than the 10% increase in allowed cost)
- Coinsurance plans do not experience the fixed cost leveraging because they produce proportional increases
Other Types of Pharmacy Analytics
- Valuing Financial Impact of Formulary Decisions
- Covering OTC Drugs
- Price Protections
1. Valuing Financial Impact of Formulary Decisions
a. Goals of Fomulary Design
- Adequate Coverage
- Marketability
- Cost Control
b. First component of formulary development is negotiating discounts with retail and mail order pharmacies
c. Tier placement and assicated cost sharing is also a very important decision with significant financial impact
- Tier placement affects cost sharing buy also may cause members to potentially change the drug they are taking if a cheaper alternative is available
- Plans use this tier placement as leverage in rebate negotiations - putting a drug on a preferred tier would increase its utilization
- Differences in the net plan liability can be taken into account for these negotiations
d. When valuing tier changes for a formulary, change to all drugs within a therapeutic class must be accounted for
- Projecting the market share utilization change is a key component to valuing the financial impact of formulary changes
2. Covering Over-the-Counter (OTC) Drugs
a. Plans may cover OTC drugs in their formularies
b. To be beneficial, savings from members who switch from prescription to OTC drugs must be greater than the cost of covering new claimants
- New claimants are those that didn’t have a prescription drug but would choose to use the OTC drug if it were covered
3. Price Protection
a. Negotiating strategy between drug manufacturers and health plans to control increases in the price of drugs
b. Price Protection - agreement between manufacturer and health plan where price for a given drug will not exceed an agreed threshold
- If price does not exceed threshold, manufacturer pays the health plan an additional rebate
