Tag Archives: Cost

Structuring a PBM vendor process to reduce costs

Plan sponsors who routinely review the selection and contracting process they use to hire a pharmacy benefits manager (PBM) can cut costs. An experienced consultant can help by customizing the process to meet the plan sponsor’s needs and provide critical assistance throughout the process. Milliman’s Brian Anderson and Alex Johnson offer some perspective in the article “Staying competitive in the pharmacy benefits manager selection process.” The authors also provide an overview of PBM contract negotiations and market checks.

Here’s an excerpt:

When selecting a PBM, a plan sponsor should follow a well-structured RFP process. It is imperative that the process involves individuals with extensive experience and knowledge in reviewing, implementing, managing, and auditing PBM arrangements. Their experience will play an important role in achieving the best available PBM arrangement for the plan sponsor, including optimal financial terms and concise contractual language.

Most plan sponsors partner with a pharmacy benefits consultant to guide them through the process and help them achieve the best results. It is vital to develop a proven, objective, and tailored grading process to evaluate the PBM vendor responses and make valid financial and administrative comparisons across vendors. An experienced consultant or advisor can help in this regard.

The steps required in the PBM vendor selection process include:

• Preparing the RFP
• Distributing the RFP to prospective PBMs
• Conducting a bidders’ conference call
• Analyzing financial bids and grading responses
• Summarizing analysis and choosing finalists
• Finalizing PBM selection
• Drafting the contract

How is the ACA’S health insurance coverage impacting employer plans?

Coates-SarahIn the shifting landscape of the Patient Protection and Affordable Care Act (ACA), where do employers currently stand, where are we headed—and what is it going to cost? In March, the Congressional Budget Office (CBO) published its Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026, highlighting health insurance enrollment projections, subsidy amounts, and the impact of the ACA on health insurance. The report encompasses all types of coverage for those under 65; the following summary focuses mainly on the impacts associated with employer-based coverage.

The CBO and Joint Committee on Taxation (JCT) currently estimate that, in 2016, total federal subsidies, taxes, and penalties associated with health insurance coverage for those under 65 will result in a net subsidy from the federal government of $660 billion—3.6% of gross domestic product (GDP). This is expected to rise at an average annual rate of 5.4%, reaching $1.1 trillion (4.1% of GDP) in 2026.

The two major culprits in terms of costs are the federal subsidies associated with employment-based coverage, and federal spending for Medicaid and Children’s Health Insurance Program (CHIP) benefits. Respectively, they take up 41% and 43% of the total net subsidy for people under age 65.

Who is covered and how?
According to the report, healthcare coverage is more prevalent now than prior to the ACA.

• In 2016, of the total estimated population (272 million lives), approximately 155 million people are covered by employer-sponsored insurance.
• In 2026, of the total estimated population (280 million lives), the CBO estimates that approximately 152 million people will be covered through employer-sponsored plans.

Currently, the number of uninsured is approximately 27 million. This is expected to increase slightly to 28 million in 2026. According to the CBO report, if the ACA had not been enacted, the total number of uninsured would have been 49 million this year and would have reached 52 million by 2026.

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What are the ACA’s subsidies costing taxpayers?
The CBO and JCT have estimated the costs of federal subsidies associated with health insurance coverage for people under age 65. Shown below, these include the tax exclusion for employment-based coverage (of this, $1 billion per year is attributed to small-employer tax credits), and subsidies offered through healthcare marketplaces and related spending.

Chart 5

Health insurance taxes and penalties are projected to reduce total subsidies by $15 billion in 2016 and to grow
to $59 billion in 2026:

Chart 6

This article first appeared in the September 2016 issue of Health and Group Benefits News and Developments.

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Milliman releases analysis of Medicaid managed care administrative costs

Pettit_T_ChristopherMilliman today announced the second iteration of its research into the administrative expenses associated with Medicaid managed care plans. This research complements the analysis of Medicaid managed care financial results report that was released on June 6, 2016. The information has considerable value, given the Centers for Medicare and Medicaid Services (CMS) Medicaid managed care rule (CMS-2390-F), published on April 25, 2016, and historical CMS Medicaid capitation rate-setting guidance. These regulations require greater documentation of administrative costs included in the capitation rates and this information can be useful in providing greater transparency of the rate-setting process.

The additional analysis on administrative expenses is critical in helping understand the true expenses incurred by Medicaid managed care organizations. The recent approval of the Medicaid managed care rule highlights the focus placed on each component of the managed care capitation rates. We believe that this research can become as familiar in the industry as our financial analysis report to help establish benchmarks for use in rate setting.

Key findings from the analysis include:
• The average administrative loss ratio (ALR) for Medicaid-focused plans is 8.8% after removing the impact of taxes and fees
• Calendar year (CY) 2014 and 2015 ALR values, net of taxes and fees, are considerably lower than in previous years
• The administrative per member per month (PMPM) value continues to climb as average premium levels increase

This is the second year the administrative expenses report has been produced, with expectation of providing future annual updates consistent with the Medicaid managed care organization financial results report.

To see the Medicaid administrative expenses report, click here.

Analyzing data can help hospitals manage the costs of post-acute services

The Centers for Medicare and Medicaid Services (CMS) has implemented a new payment structure under the Comprehensive Care for Joint Replacement (CJR) model. The model is meant to reduce costs and improve the quality of care for Medicare beneficiaries following some lower extremity joint replacement (LEJR) procedures.

Services rendered by post-acute providers will affect the payments hospitals receive for LEJR patients. However, payments are partly tied to certain quality metrics. In this article, Milliman’s Pamela Pelizzari discusses how important it is for hospitals to understand and analyze the data sources CMS will make available for the CJR model.

Here is an excerpt:

Because the CJR episodes include services rendered after discharge from an LEJR hospitalization, much of the hospital’s financial responsibility is tied to services performed outside the walls of the hospital. The only way to fully understand these services is by analyzing the data sets that CMS provides to CJR hospitals throughout the life of the model, beginning with historical baseline data that was provided in early 2016. This data allows hospitals to examine their historical utilization of CJR-included services, particularly high-cost services such as skilled nursing facility stays, inpatient rehabilitation stays, and readmissions to acute care hospitals that may be avoidable….

While understanding a hospital’s own historical utilization on a simulated episodic basis is the first step toward success under CJR, it is also essential for that hospital to compare itself with other hospitals (both within the same census region and across the country) to understand what savings opportunities may be available and how far utilization needs to be managed to achieve the regional target prices enforced through CJR. Looking at regional and national benchmarks can allow a hospital to comprehend the level of achievement that may be possible. By understanding national average and best-performing hospital utilization patterns, it is possible to initiate conversations about the potential to shift utilization for LEJR patients to lower-acuity post-acute settings.

Introducing physician-focused consumerism

Physician-focused consumerism is a set of initiatives designed to align physician decision making with high-quality healthcare outcomes provided in a cost-efficient manner. Physician-focused consumerism can include the redesign of financial incentives, greater access to patient data, decision support tools, ongoing education about treatment alternatives, and an understanding of the financial impact of alternatives on patients. It can be the basis for collaborative efforts between employer health plan sponsors, provider systems, and physicians to help achieve high-quality care in a cost-effective manner.

Milliman is well-suited to support employers’ collaborative efforts with accountable care organizations (ACOs) and to review current provider networks to identify the status of physician-focused consumerism. Dan Bostedt offers some perspective in his article “Health plan consumerism: Who is the consumer?

S&P: Healthcare expenditures for commercial plans up 3.2% in the year to August 2013

Data released today for the S&P Healthcare Claims Indices showed that total medical costs rose 3.2% in the 12 months ended August 2013 compared to the 4.8% rise for the 12 months ended August 2012. Medical costs—inpatient and outpatient hospitalization plus professional services—rose 3.7% and prescription drugs rose 0.9% over the same period. All rose less than a year earlier.

Among the key components of medical costs, inpatient fee-for-service costs rose 4.2% compared to 4.4% in the earlier period while outpatient fee-for-service costs rose 5.7% compared to 7.9% in the earlier period. Prescription drugs expenditures were up 0.9% versus 2.9% in the 12 months ended August 2012. These figures, which represent the most current data available, are based on expenditures incurred in the 12 months ended August 2013. Because of standard industry lags in invoicing claims and resolving disputed charges, it is not possible for the indices to be calculated without a lag.

“The S&P Healthcare Claim Indices show healthcare expenditures rose less in the most recent period. This confirms other reports that the supposedly inexorable rise in healthcare costs is moderating,” says David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “While the slower cost increases are most welcome, there is debate over the cause. For some categories there is sufficient detail to examine price and usage separately. For instance, in inpatient fee-for-service, one area showing relatively stable cost increases, the indices show that declining usage is contributing to the slowdown while unit costs rise at about 6% annually.

“One often cited source of moderation is the growth of generic pharmaceuticals, which compete with their branded counterparts on price. Among branded prescription drugs, prices continue to climb at more than 15% annually. Apparently the purveyors of branded pharmaceuticals chose to respond to price competition by increasing prices to offset declining usage. Compared to the branded, where usage is dropping by 15% annually, generics see consistent increases.

“It is too soon to credit the slower cost increases to Obamacare, going forward the indices will show whether the slowing of cost growth continues.”