Learning Objectives 1 & 2 - Medical, Dental, & Pharmacy

Question 1

Key dimensions of medical benefit plans.

Answer 1

1. Definition of covered service and conditions under which those services are covered.
2. Degree to which the individual participates in the cost of the service.
3. The breadth of the network and the degree to which the provider participates in the risk related to the cost of the service.

Question 2

The following hierarchy (from the NAIC model) is used to determine the primary carrier (for COB):

Answer 2

1. The plan without a coordination of benefits clause (if any).
2. the carrier covering the individual as an employee.
3. If both carriers cover the individual as a dependent, the plan for which the covered employee has the birthday that falls earlier tin the calendar year.
4. If both plans cover and individual as an employee, or if both employees covering a dependent have the same birthday, the plan that has had coverage in effect the longest.

Question 3

primary objective of Canadian health care policy

Answer 3

“to protect, promote, and restore the physical and mental well-being of residents of Canada and to facilitate reasonable access to health services without financial or other barriers”

Question 4

6 underlying principles of the Canadian Drug Insurance Pooling Corporation

Answer 4

1. Availability to all fully insured group in Canada.
2. Affordability - a plan sponsor should not see unaffordable rate increases due to the incidence of a large recurring drug claim from one of it’s members.
3. Transferability - all fully insured groups should be able to select the participating insurer of their choice.
4. Viability - no solution should unduly undermine the ability of a participating insurer to continue.
5. Participative - any solution should be available to all eligible insurance companies.
6. Competitive - any solution must encourage competition in the market.

Question 5

5 major areas of dental coverage in Canada

Answer 5

1. Basic Care - diagnostic & preventive care (such as oral exams & x-rays).
2. Minor restorative care & surgery (such as filings & extractions)
3. periodontal & endodontal treatments (such as root canal therapy)
4. Major care - prostheses and major restorative treatments (such as crowns & dentures)
5. Orthodontia - plans usually only cover this for children

Question 6

5 elements that may influence the average medical claim costs

Answer 6

1. changes in unit cost
2. utilization
3. mix of services
4. provider reimbursement
5. plan design

Question 7

Claim Costs Exceeding the Deductible - formula

Answer 7

Accumulated Annual Cost - Accumulated Frequency * deductible

Question 8

Value of the Deductible - formula

Answer 8

total claim cost - claim cost exceeding the deductible amount

Question 9

Gross Benefit Cost - formula

Answer 9

annual frequency (x/1,000) * average cost per service / 12

Question 10

Final Net Benefit - formula

Answer 10

Gross Benefit Cost - Member Cost Sharing

Question 11

Services Covered by Medical Policies (US)

Answer 11

1. Facility Services - includes acute care hospitals, ERs, outpatient facilities, alcohol & drug treatment programs, SNF facilities, & home health care
2. Professional Services - includes surgeries, office visits, home visits, hospital visits, ER visits, & preventive care.
3. diagnostic services
4. x-ray & lab services
5. prescription drugs
6. DME
7. ambulance
8. private duty nursing
9. wellness benefits
10. nurse help lines
11. disease management benefits

Question 12

Purposes of having the insured share in the cost of the medical plan

Answer 12

1. control utilization - studies have shown drastic reductions in utilization when a plan is subject to deductibles, copays, or coinsurance
2. control costs - requiring cost sharing lowers the premium and therefore leads to more affordable coverage
3. control risk to the insurer- requiring cost sharing results in a benefit program that more truly represents an insurable risk.

Question 13

types of provider reimbursement

Answer 13

1. Discount from billed charges
2. fee schedules & maximums
3. per diem reimbursements - a negotiated amount per day of hospital stay. Varies by level of care.
4. hospital diagnosis related groups (DRGs) - a set payment based on the patient’s diagnosis, regardless of the length of stay or level of services.
5. Ambulatory payment classifications - similar to DRGs. Used for outpatient charges.
6. Case rate or global payments - a single reimbursement is negotiated to cover all services associated with a given condition. Commonly used for maternity or transplant cases.
7. Bonus Pools - pays the provider a bonus if utilization is below target or quality-of-care
8. Capitation - the provider performs a defined range of services in return for a monthly payment per enrollee. Variations include global and specialty cap.
9. Integrated delivery system - the insurer employees the providers of care (common in staff model HMOs)

Question 14

Provisions included in Medical Plans

Answer 14

1. Overall exclusions
2. Mandated Benefits
3. Coordination of Benefits - to determine the payment when a service is covered under multiple benefit plans
4. Subrogation - assigns the carrier the right to recovery from any injuring party (commonly used for workers’ comp claims)
5. COBRA continuation - employers with at least 20 employees must offer continued coverage for 18 to 36 months beyond a person’s normal termination date

Question 15

Common Exclusions for Medical Plans

Answer 15

1. Services deemed not to be medically necessary.
2. Services deemed to be experimental.
3. Services related to cosmetic surgery.
4. Other specified services.
5. transplants
6. Services for which payment in not otherwise required.
7. Services required due to an act of war.
8. Services provided as a result of a work-related injury.
9. Services provided by a provider related to the patient.

Question 16

Criteria for provincial Medicare plans to qualify for federal contributions (Canada Health Act)

Answer 16

1. Comprehensiveness - all medically-required hospital and physician services must be covered under the plan.
2. Universality - all legal residents of a province must be entitled to the plan’s services on uniform terms and conditions
3. Accessibility - reasonable access by residents to hospital and physician services must not be impeded by charges made to those residents.
4. Portability - the plan may not impose a waiting period in excess of 3 months for new residents, and coverage must be maintained when a resident moves or travels within Canada or is temporarily out of the country
5. Public Administration - the plan must be administered on a non-profit basis by a public authority.
   (Extra billing and user charges are not prohibited, but they will result in reduction in the federal grants to province.)

Question 17

Benefits Covered by most Canadian provincial Medicare Plans

Answer 17

1. Hospital Services - room and board in a public ward, as well as physicians’ services, diagnostics, anesthesia, nursing care, drugs, and supplies.
2. Physician Services - includes services of a general practitioner, specialist, psychiatrist, and others.
3. Services of other professionals, such as optometrists, chiropractors, osteopaths, and podiatrists
4. Services of a physiotherapist if in a hospital facility.
5. Prescription drugs for social assistance recipients and resident over age 65 in most provinces.
6. Prostheses and therapeutic equipment.
7. Other diagnostic services, such as lab tests and x-rays performed outside a hospital.
8. Dental Care - medically-required oral and dental surgery performed in a hospital.
9. Out-of-province coverage - includes expenses incurred in other provinces and outside of Canada.

Question 18

Concerns about the Canadian Medicare system, from recent reports

Answer 18

1. Waiting for months to see a specialist is common
2. Shortage of equipment, specialists, and technicians cause waiting for diagnostic procedures.
3. Waiting for elective and non-emergency surgery is common, due to lack of operating room time and a shortage of hospital beds
4. ERs are overcrowded, due in part to the unavailability of after-hours clinics
5. People who need LTC tend to wait in hospitals because of shortage of beds in LTC facilities
6. Technology-intensive services are not available everywhere
7. The demand for services exceeds the supply, resulting rationing.
8. Some essential services (such as prescription drugs for chronic illnesses) are not covered by Medicare.

Question 19

Categories of expenses commonly covered by private (supplemental) medical plans in Canada

Answer 19

1. Hospital Charges - plans usually pay charges for room and board, up to the amount needed to upgrade to a semi-private room or private room
2. Prescription Drugs - these represent approximately 80-75% of the cost of private medical plans. Various plan designs exist, but they generally cover all drugs prescribed by a physician.
3. Health Professional Practitioners - eligible expenses are usually subject to inside limits (such as one treatment per day and a max number of treatments per year).
4. Miscellaneous expenses - these are usually eligible only if prescribed by a physician and include almost any insurable expense not otherwise covered, such as ambulance, x-rays, and prostheses.
5. Vision Care - eye examination by an optometrist are usually included in the medical plan, while glasses or contact lenses may be included in either the medical plan or on a stand-alone basis.
6. Out-of-Canada coverage - the most common coverage is for emergency care for short trips outside of Canada.

Question 20

Sources of internal data

Answer 20

1. Medical claim systems data - includes billed claims, eligible claims, allowed amounts, and paid amounts.
2. Pharmacy Benefit Manager (PBM) data - organizations that use third-party PBMs to administer prescription drug claims will need to collect this data from them.
3. Premium Billing and eligibility data - includes exposure information that is needed to convert claims data to a per member or employee basis.
4. Provider Contract systems data - includes files of contractual reimbursement rates.

Question 21

Steps in Developing claims costs for use in a manual rate

Answer 21

1. Collect Data - data should be collected for an incurral period of at least 12 months (to avoid seasonality issues). the best source of data is a company’s own experience
2. Normalize the data for the important rating variables.
3. Project the experience period costs to the rating period - the trend rate should reflect changes in utilization of services, changes in the average cost per service, and other factors, such as regulatory impacts and cost shifting among payers.

Question 22

Important rating variables when normalizing data for use in the rate manual

Answer 22

Many of these variables can now only be used in rating large groups, due to the ACA:

1. Age and gender - it may be appropriate to have separate age and gender factors for different major service categories or different plan types (such as high deductible plans)
2. Geographic Area
3. Benefit Plan - adjust the data to reflect a common benefit plan
4. Group characteristics - industry & group size
5. Utilization Management Programs
6. Provider Reimbursement Arrangements
7. Other risk adjusters - based primarily on claim, diagnosis, encounter and pharmacy data

Question 23

Methods for adjusting manual rates for specific benefit plans

Answer 23

1. Claim Probability Distribution - these are typically used to estimate the impact on claim costs of deductibles, coinsurance, and OOP maxes.
2. Actuarial Cost Models - these models build estimated total claim costs by developing a net claim cost (after member cost sharing) for each detailed type of service and summing to get the total

Question 24

Organizations that sell dental insurance

Answer 24

1. Insurance Companies
2. Dental service corporations, such as Delta Dental
3. Blue Cross & Blue Shield Plans
4. Dental referral plans (discount dental plans)
5. Third Party Administrators

Question 25

4 classes of dental benefits (US)

Answer 25

Class 1. Preventive & Diagnostic - oral exams, cleanings, fluoride, sealants, x-rays
Class 2. Basic - fillings, extractions, endodontics (root canals), periodontics (treatment of gum disease), and oral surgery
Class 3. Major - inlays, onlays, crowns, bridges, and dentures
Class 4. Orthodontics - sometimes added to dental plans, with a lifetime max

Question 26

Typical plan design for dental insurance

Answer 26

~Reimbursement varies by class. Less cost sharing is required on preventive services to encourage their use.
~Calendar year deductible - such as $50 or $100, often waived for Class I services
~Annual Plan benefit max - ranges from $1,000 to $2,500 per person
~no annual OOPM. Exception for ped dental under ACA

Question 27

Dental Plan cost containment provisions

Answer 27

1. Frequency Limitations - such as 2 cleanings/ year & 1 set of x-rays/ year
2. Pre-existing conditions limitations - prevent the plan from paying for charge incurred prior to the insurance effective date, such as replacement of a missing tooth
3. Least expensive alternative treatment - the insurer reimburses based on the least expensive clinically acceptable treatment plan
4. Waiting Periods - must be satisfied before coverage begins. Are generally applied to Class III & Class IV services, and typically range from 3-12 months
5. Exclusions - such as cosmetic services, experimental treatments, and services that are typically covered by a medical plan.
6. Benefits after insurance ends - coverage for work started before termination only continues for 31 days

Question 28

Underwriting and rating parameters for dental

Answer 28

1. Group Size - min group size of 5 usually enforced to avoid antiselection
2. Eligible individuals & groups - plans usually cover active employees and dependents. Some insurers don’t cover groups from certain industries.
3. Participation - many plans allow for participation as low as 25% of eligible employees
4. Employer contributions - most non-voluntary plans require a minimum employer contribution of 50% of the single employee premium.
5. Other coverages - if dental is packaged with other insurance options it helps prevent antiselection
6. New Business - plans may charge higher rates to groups who are offering dental coverage for the first time, due to pent up demand for dental services by employees in these groups
7. Geographic location - area factors vary by state, service area, or zip code
8. Demographics - claim costs are higher for females and older ages. Common family structures are 2-tier, 3-tier, and 4-tier.
9. Waiting and deferral periods - may have a waiting period before a new employee can join the plan.
10. Incentive coinsurance - may be used on plans with no prior coverage. Start with low coinsurance for classes II and III and raise the level each year as the individual utilizes preventative services.
11. Transferred Business - fi the plan is a replacement, then it may pay for claims incurred in the prior year.

Question 29

Dental reimbursement models & delivery systems

Answer 29

1. Indemnity - traditional FFS reimbursement. Plan members may use an dentist, but he dentist will bill the patient for the balance remaining after the plan makes its maximum payment.
   a. scheduled indemnity plans
   b. UCR (usual, customary, & reasonable plans)
2. PPO - a contracted network of dentists agree to discounted FFS reimbursement arrangements. Discount are only available in network, and in-network providers may not balance bill the patient.
   a. Managed indemnity plans (passive PPOs)
   b. Exclusive provider organization (EPO)
3. Dental HMO - uses prepaid or capitated arrangements. Members must use the network.
   a. Independent Provider Association (IPA) plans
   b. staff model dental HMO plans
4. Point of Service - a hybrid of the indemnity, PPO, and dental HMO concepts.
5. Discount dental plans - members receive discounts from preferred providers (this is not insurance.)

Question 30

Comparison of dental reimbursement models

Answer 30

1. Premium - HOMOs are the least expensive & indemnity plans are the most expensive
2. Patient Access - any dentist can be used for indemnity plans and PPO plans, but members must use the network in an HMO
3. Benefit Richness - HMOs typically cover the same benefits as PPOs and indemnity plans but with less OOP expense
4. Cost Management - indemnity plans use some cost controls. PPOs use those controls and a credentialing process to find cost-effective providers. HMOs add a gatekeeper approach.
5. Utilization - indemnity plans and PPOs may overutilize due to FFS. HMOs may underutilize due to capitation.
6. Quality assurance - unlike indemnity plans, PPOs and HMOs have credentialing processes to help assure quality care.
7. Fraud potential - detecting fraud will be based on the insurer’s efforts, rather than the particular plan type.
8. Provider contracting - PPOs and HMOs have contracts with dentists, who agree to accept discounted charges.

Question 31

Claims administration procedures used by dental plans

Answer 31

1. predetermination of benefits - the plan wants members to submit expensive treatment plans for review before service.
2. Least expensive alternative treatment
3. Coordination of benefits - done to avoid paying benefits in excess of charges
4. Dental Review - difficult claims should be reviewed by a dental consultant.
5. Maximum allowable chare (aka UCR) - expenses are limited to the lesser of:
   a. the dentist’s usual fee for the procedure
   b. the fee level set by the plan administrator based
   on charges submitted in the same geographical
   area
   c. the reasonable fee charged for a service when
   unusual circumstances or complications exist.

Question 32

Claim Cost Factors

Answer 32

factors related to:
  1. the plan  
  2. the service providers and their reimbursement
      levels
  3. the covered population (insureds)

Question 33

Dental trend is (higher or lower) than medical trend

Answer 33

lower

Question 34

The reasonable fee is a

Answer 34

percentile ( usually the 90th) of nationally charged fees

Question 35

The customary fee is a

Answer 35

percentile (such as the 80th) of locally charge fees

Question 36

The R&C fee is

Answer 36

the lesser of the reasonable fee & the customary fee

Question 37

The UCR fee is

Answer 37

the lowest of the provider’s usual fee for the service, the customary fee in the geographic area, and the reasonable fee based on the circumstance.

Question 38

AVs for stand-alone dental plans must be either

Answer 38

70% (low plan) or 85% (high plan)

Question 39

Data sources for developing dental claim costs

Answer 39

1. own company data (best source)
2. Outside databases
   a. Prevailing Health Care Charges System
   b. MDR Payment System
   c. National Dental Advisory Service
   d. ADA “Survey of Dental Fees”
3. Consulting firms (have manuals containing utilization
   data
4. Rate filings of other carriers
5. 3rd party administrators
6. Reinsurers

Question 40

Plan characteristics that impact dental claims costs

Answer 40

1. Covered Benefits - plans often have a missing tooth provision and limit the replacement of dentures every 5-7 years
2. Cost sharing provisions - these provisions are important because receiving proper dental care is very elective from the insured’s point of view. Provisions include deductibles, coinsurance & copays, and maximum limits.
3. Waiting Period - used to discourage individuals from enrolling for one year to treat significant dental problems and then dropping coverage.
4. Period of Coverage - will need to project past experience into the future. Dental trend should not be assumed to be the same as medical trend.

Question 41

Network & care management practices that impact dental claims costs

Answer 41

1. Provider Reimbursement Levels
   a. FFS reimbursement may be based on usual,
   customary, and reasonable levels (UCR)
   b. PPO networks contract for reduced fees from
   a limited number of dentists. The dentist may not bill
   above those levels.
   c. Capitation is common with the dental HMOs.
2. Care Management practices - these will depend on the reimbursement method used. Practice include preauthorization and self-management (for capitated providers.)

Question 42

Insured characteristics that impact dental claims cost

Answer 42

1. Age & Gender - adults > children, females > males
2. Geographic Area
3. Group Size - smaller groups have higher costs due to antiselection
4. Prior Coverage & Pre-announcement - groups without prior coverage will have high costs in the first year due to utilization by those who had put off having dental work done. If the plan is announced many months prior to becoming effective, this problem becomes even worse.
5. Employee Turnover - high turnover increases costs since some new employees didn’t have prior coverage.
6. Occupation & Income - entertainers, professionals, and groups who are more aware of their benefits have higher costs
7. Contribution & Participation - groups with less than 100% participation will have higher costs due to antiselections. The level of participation is inversely related to the required contribution level.

Question 43

reasons for poor adherence

Answer 43

definition: the extent to which a patient takes a prescription drug exactly as directed.

1. affordability
2. forgetfulness
3. side effects
4. not believing they need the drug

Question 44

models by which PBMs contract with 3rd party payers

Answer 44

1. Transparent or Pass-Through Model - pharmacy discounts negotiated by the PBM are used to determine the claim liability for the 3rd party payer
2. Traditional Model (Lock-in Pricing) - pharmacy discounts are not passed directly to the 3rd party. The 3rd party payer receives the rates they contract with the PBM, which may be different than what the PBM contracts with the pharmacy.

Question 45

What are drug manufacturer rebates?

Answer 45

payments from manufacturers to PBMs in exchange for preferred placement of the manufacturer’s drugs on the PBM’s formulary.
~can be amounts per unit sold or an aggregate amount based on market shares or sales volume

Question 46

Factors that influence prescription drug costs

Answer 46

1. Prescription Drug Pipeline - manufacturers want to recover their investments inn research and development of new drugs
2. Brand patent protection - patents protect a drug’s original manufacturer from competition for a period of time
3. Specialty Drugs - have relatively higher cost than other brand name drugs
4. Biologics - these are very expensive and are not easily replicated, so generics are not usually produced
5. Direct to consumer advertising - marketing of high-cost drugs has been effective, resulting in many patients requesting the new drugs
6. member cost sharing offsets - many manufacturers offer to cover member OOP costs for expensive drugs. this removes the member’s incentive to use preferred products and generics
7. Faster approval process by the FDA - this has increased the number of high-cost drugs coming to the market
8. Aging Population - leads to more demand for drug therapies
9. Increase in awareness of and testing for disease - often results in drug therapies to avoid acute illness
   10 Personalized medicine - genetic testing sometimes leads to unnecessary medication use.

Question 47

Entities in the pharmacy benefits system in the U.S.

Answer 47

1. Pharmaceutical Manufacturers - they research, obtain approval for, produce, and distribute prescription drugs. They sell drugs to wholesalers and also directly to pharmacies. They also negotiate with PBMs, offering rebates in exchange for favorable formulary placement.
2. Pharmaceutical Wholesalers - they purchase prescription drugs from manufacturers and distribute drugs to pharmacies
3. Pharmacies - they dispense prescription drugs directly to beneficiaries, and purchase drugs either from wholesalers or directly from manufacturers.
4. Pharmacy Benefit Managers (PBMs)
5. 3rd Party Payers (insurance companies, employers, or government programs) - they fund the prescription drug benefit and in some instances assume the claims risk
6. Beneficiaries - they are the consumers of prescription drugs
7. Prescribing health care providers - they diagnose beneficiaries and prescribe drugs for them.

Question 48

Functions preformed by PBMs

Answer 48

1. Administrator prescription drug benefit programs
2. Negotiate rebates with manufacturers.
3. Negotiate discounts with pharmacies
4. Manage relationships with 3rd party payers
5. Preforming utilization management
6. Run drug adherence programs
7. Integrate drug benefits with medical
8. Establish a formulary of drugs.
9. Build a network of pharmacies

Question 49

Types of Drugs

Answer 49

1. Generic - typically the lowest cost and most commonly dispensed. A generic equivalent drug is a generic version of a brand drug, created once a brand drug’s patent expires.
2. Brand name - multi-source brand drugs have a generic equivalent while single-source brand drugs do not
3. Specialty - high-cost drugs, many of which require special treatment and delivery (temp, administration)
4. Biologic - derived from living organisms and are usually very expensive. Generally considered to be specialty drugs.
5. Biosimilars, or follow-on Biologics - subsequent versions of biologic drugs developed by different manufacturers. May not be therapeutically equivalent to biologics.
6. Compound - drugs mixed by a pharmacist. Can deliver a customized strength & dosage to meet a beneficiary’s specific needs.
7. Over the counter - no prescription needed
8. Supplies - such as diabetic test strips & alcohol pads

Question 50

Stages of the prescription drug lifecycle

Answer 50

1. Research & Development by Manufacturers - includes initial drug discovery, preclinical testing, clinical trials, and review by the FDA. Typically lasts 15 years.
2. Brand patent protection period - the manufacturer is awarded the exclusive right to produce the drug. Typically lasts 12 years.
3. Generic exclusivity period - immediately follows the patent protection period. Only the brand name manufacturer and one additional manufacturer are allowed to sell the generic equivalent. Typically lasts six months.
4. Generic drug lifespan - after the generic exclusivity period, all manufacturers may produce & sell the drug.

Question 51

Methods of prescription drug distribution

Answer 51

1. Retail Pharmacies - physical locations where beneficiaries can visit to pick up Rx. Typically dispense a 1 month supply.
2. Mail order pharmacies - they send prescription through the mail, typically for a 3 month supply of maintenance medications for treating chronic conditions
3. Specialty Pharmacies - they focus on delivering specialty drugs, which often require special storage and administration
4. health care providers
5. LTC facilities
6. Hospice facilities
   7 Home health professionals

Question 52

Types of cost sharing plans for pharmacy benefits

Answer 52

1. Copay plans - often seen with managed care plans. Copays typically vary by tier.
2. Coinsurance plans - coinsurance will increase by tier. typically includes a deductible, either integrated with a medical plan or a separate deductible if the plan is not integrated.
3. Combinates of copays and coinsurance
   a. cost sharing equal to the larger of a copay or % coinsurance
   b. a coinsurance % with a dollar maximum

Question 53

Types of Formulary Designs

Answer 53

Formularies are lists of preferred drugs

1. Closed - only formulary drugs are covered. But plans must have a process to cover non-formulary drugs for individual patients based on medical necessity.
2. Open - -all eligible drugs are covered, but cost sharing may vary by tier.
3. Tiered (incentive) - separate formulary tiers are established, with copays or coinsurance varying by tier

Question 54

Most Common Pharmacy Benefit Tier Designs

Answer 54

1. Two Tier - generics and brand name
2. Three Tier - generics, preferred brand, & non-preferred drugs
3. Four tier - most common is to add specialty drugs to a 3-tier design
4. five tier - start with a 4 tier design with specialty as tier 4 and then split on of those tiers:
   a. split the generic tier into preferred & non-preferred (common for Part D)
   b. split the specialty tier into preferred & non-preferred
5. Six tier - options include:
   a. generic, preferred brand, non-preferred brand, biosimilars, preferred specialty, and non-preferred specialty
   b. preferred & non-preferred tiers for each of generic, brand, & specialty

Question 55

Factors that determine leverage when negotiating rebates from drug manufacturers

Answer 55

1. Number of lives represented - successful contracting requires at least 500,000 lives over which the plan can exert formulary control
2. Control of Market Share - ability to move market share to preferred products
3. Consistency of Behavior - the predictability of the plan’s response to a manufacturer’s actions

Question 56

Allowed cost trend (for pharmacy pricing) includes the following:

Answer 56

1. Unit Cost Change - includes changes in AWP for current drugs. It also must account for new drugs entering the market.
   2 Utilization change - utilization is affected by changes in the formulary management. This component also must account for new drugs entering the market.
2. Mix Change - this refers to changes in the types of drugs used, such as a shift between use of generics and brand name drugs.

Question 57

Formulary Management Programs

Answer 57

1. Prior Authorization
2. Step Therapy - requires a patient to try a different drug or a series of drugs before providing coverage for the drug in question
3. Quantity Limits

Question 58

difference between the nominal copay & the effective copay

Answer 58

The nominal copay is the value stated in the plan design; the effective copay is the average copay paid.

Question 59

Net Plan Liability (Rx)

Answer 59

Projected Allowed Amount

• Member Cost Sharing
• Rebates

Question 60

Premium Calculation (Rx)

Answer 60

Net Plan Liability
+ Expenses
+ Profit Margin

Question 61

Key components & decisions of formulary development include:

Answer 61

1. Negotiating discounts with retail and mail order pharmacies.
2. Tier placement of covered drugs - Changing a drug’s tier affects the cost sharing the member must pay. It may cause members to change drugs they are taking. Plan must consider the change in member cost sharing and change in rebate.

Question 62

Data Fields included in pharmacy data files

Answer 62

One Record per prescription:

1. Age, gender, & DOB
2. Fill date - “incurred date” of claim
3. Claim ID
4. Prescribing Provider ID
5. Pharmacy Provider ID
6. Drug name
7. Tier - defined by plan design
8. NDC (National Drug Code) - 11 digits
9. Days Supply
10. Units - # of pills or volume
11. Allowed amount - sum of discounted ingredient cost, dispensing fee, vaccine fee, and sales tax.
12. Refill Indicators
13. Member & Plan Cost
14. Therapeutic Class - categorization based on the conditions that the drugs are intended to treat
15. Other types of drug codes
    a. RxNorm Concept Unique Identifier (RxCUI)
    b. Generic Product Identifier (GPI)
16. Average Wholesale Price (AWP) & Wholesale Acquisition Cost (WAC)

Question 63

Steps for calculating premiums for pharmacy benefits

Answer 63

1. Develop an allowed cost trend, including:
   a. Unit Cost Change
   b. Utilization Change
   c. Mix Change - shifts between brand & generic
2. Calculate adjustment factors for important rating variables - don’t double count factors already included in allowed trend
3. Estimate member cost sharing based on the projected allowed cost - if plan uses copays, use the average effective copay, rather than the nominal copay
4. Calculate net plan liability & premium
   a. Projected Allowed Amount = base period allowed & trend factor * other adjustment factors
   b. Net plan liability = projected allowed amount - member cost share - rebates
   c. Premium = net plan liability + expenses + profit margin

Question 64

Important Rating Factors for pharmacy benefits

Answer 64

1. Demographics
2. Area
3. Benefit Design - changes in benefits may cause changes in drug use. (induced utilization)
4. Formulary - costs are impacted by:
   a. list of covered drugs
   b. tier placement of formulary drugs
   c. formulary management programs
   d. brand patent expirations
5. Contracting - PBMs negotiate with pharmacies regarding dispensing fees and discounts off the average wholesale price
6. Other Factors - changes in mail order utilization, changes in the generic dispensing rate, and changes in utilization management or cost management programs

Question 65

Payment Mechanisms for Prescription Drugs

Answer 65

1. Average Manufacturer Price (AMP) - the price manufacturers use to sell to wholesalers. In Canada, it’s called the manufacturer’s list price (MLP) and is regulated to ensure prices charged are reasonable and in line with prices of alternative treatments.
2. Wholesale Acquisition Cost (WAC) - the manufacturer’s suggested list price, which may also be used as a sale price to the wholesaler
3. Average Wholesale Price (AWP) - is based on data obtained from manufacturers and distributors, but it’s not an average nor is it based on any actual prices paid by anyone
   a. WAC and AWP are the most widely accepted mechanisms.
   b. For brand drugs in the U.S., WAC must = 88.33% of AWP due to legislation.
4. Actual Acquisition Cost (AAC) - the price retailers pay to wholesalers, negotiated between the two parties. In some cases, pharmacies buy drugs directly from manufacturers, in which case AAC = AMP
5. Usual & Customary (U&C) retail price - the price consumers pay to retailers. Includes the retailer’s AAC plus a markup.
6. Maximum Allowable Cost (MAC) - typically used for generic drugs and can be viewed as a fee schedule.

Question 66

Layers (participants) within the prescription drug distribution channel

Answer 66

1. Manufacturers produce drugs and typically sell them to wholesalers based on AMP or WAC.
2. Wholesalers act as middlemen because retailers generally prefer to purchase drugs from one source rather than negotiating with hundreds of individual manufacturers. They sell to retailers based on WAC plus a markup or a discount off AWP.
3. Retailers (pharmacies) dispense prescription drugs to consumers, charging a U&C retail price. If insurance is involved, the retailer will negotiate pricing with the insurer or its contracted PBM.
4. Consumers purchase drugs at the U&C price if there is no insurance. If insurance is involved, consumers typically pay a copay or coinsurance and the insuree pays the rest of the negotiated price.
5. PBMs and insurers are not involved in the distribution of drugs except for PBMs that own mail service or specialty pharmacy facilities.