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Possible Impact of Government Drug Program on Community Pharmacies*
Possible Impact of Government Drug Program on Community Pharmacies* by T. Donald Rucker
T. Donald Rucker has been chief of drug studies, health insurance stu(i.ies branch in the office of research and statistics, Social Security Administration, HEW, since 1965. Previously, he was an economist for Blue Shield, Detroit Board of Commerce director of economics and research, industrial relations analyst and college lecturer and assistant professor~ He is a member of the American Statistical Association, American Public Health Association and the American Economic Association. Rucker has published a number 9! articles on economic aspects of health.
ur purpose is twofold. First, we will suggest some of the major O administrative requirements that seem likely under a government-sponsored drug insurance program. Secondly, we will evaluate these factors in terms of their possible impact on the future delivery of pharmaceutical services. No attempt will be made to cover administrative functions which might have little or no affect on community pharmacy. It should be obvious that these developments will be shaped directly by those provisions found in the legislative specifications for a drug program as well as in regulations that are issued to support its implementation. The current Medicare program does not cover prescribed drugs for ambulatory patients. Numerous proposals have been introduced in the Congress to expand health care coverage for aged persons by adding drug benefits. The Administration, though, has not endorsed any of these measures and, therefore, it would be inappropriate to discuss the future role of ph~rmacy in relationship to a particular proposal. One might attempt to use the federalstate Medicaid drug programs as a point of reference but the variability here would make such an analysis difficult. Consequently, we will discuss instead a theoretical model which outlines major administrative requiremep.ts that might be associated witp a large
0 Presented before a meeting of the National Pharmacy Insurance Council, Washington, D.C., N ovember 30, 1970.
334
drug program. One legislative provision, however, has already been promulgated and it may be indicative of congressional intent for future programs and thus illustrate the corresponding duties which must be carried out by the administrator. This example, which pertains to Title 19 programs, requires that program officials take steps which ". . . are necessary to safeguard against unnecessary utilization of such care . . . and to assure that payments . . . are not in excess of reasonable charges consistent with efficiency, economy and quality of care." i In addition to this guideline, our model assumes that a drug program would have to process at least 400,000,000 claims per year and rely heavily on the distribution facilities of community pharmacies. The possibility of government-owned pharm~cies is, of course, a topic that has generated great concern. Because it seems most unlikely that government pharmacies could become the dominant mechanism for providing patients with pharmaceutical services in the near and intermediate future, it would seem more useful for your purposes if I would examine the subject at hand by assuming that privately-owned pharmacies will continue to play a significant role. One should keep in mind, though, that unresponsiveness on the part of community pharmacy to both drug program and public service needs is likely to provoke increased interest in the development of radically different ways of furnishing patients with drug services.
Journal of the AMERICAN PHARMACEUTICAL ASSOCIATION
Optimize Patient Care Let's begin our analysis by examining optimization of patient care as the first possible objective of a drug insurance program. This means simply that the administrator would develop ~echniques to ensure that eligible beneficiaries obtain the right prescription medication in the right quantity and dosage form at the right time. Such effor.ts would constitute the major focus of a "drug utilization review program." Within limits, it i~ possible through utilization review also to encourage physicians to select low-cost therapeutic agents instead of higher cost alternatives. Because such cases usually will encompass no more than 40 percent of the total number of covered prescriptions, and because these educational steps cannot pe relied upon to yield certain and quick results, reimbursement policy for product cost and for pharmacy overhead expenses must b~ designed to carry the major burden of program cost control. Moreover, in light of the physician and pharmacist shortage, it would seem foolish to insist that professionals be~ome preoccupied with cost control to such an extent that optimization of patient care received very little attention. This situ~tion suggests a principle of drug insurance administration, namely, specialization of function. Thus, professionals would be expected to give primary attention to those areas where they can make the greatest contribution to improve patient health, i.e., the selection and dispensing of appropriate medications. In a similar fashion, the insurance program would assume primary responsibility for analysis and determination of reimbursement policy. Distortion of these respective roles is not likely to ensure either optimum patient care or minimum program cost. Contemporary drug programs have not often given the goal of patient care such a high priority. They have been preoccupied usually with paying
claims and attempting to catch up with providers or beneficiaries who were endeavoring to defraud the program. Because not all prescribing today is rationai2 and because a goal of optimizing patient care holds great promise for both raising health standards and controlling program cost, it seems reasonable to prediot that the functions noted above, which are the more traditional administrative ones, will no longer dominate program operations. Consequently, I am going to assume that a large, national drug program would devote major attention to methods for improving patient care. Given such a pr"iority, it may be expected that community pharmacists would play an appropriate role in achieving the indicated objective. This means that they would (a) participate in review activities conducted by the drug insurance program, (b) consult with patients concerning the proper use of medications and (c) interpret Additional patient drug histories. functions related to optimization of patient care might be proposed, but time permits only a brief examination of each of these items. The first area related to improved patient care is the involvement of community pharmacists, along with other health professionals, in retrospective review activities sponsored by the drug program. Mechanisms for realizing this goal and defining responsibilities of the respective professions are, however, still in a nascent stage of development. Because this particular review funotion will be unrelated to dispensing, the drug program would be expected to establish a separate method for compensating professionals who participate in this manner. The second general area related to improved patient drug use is found in consultation services provided by the community pharmacist. Of course, this function is inherent in the proper interpretation of patient medication records. Let me just note quickly that pharmacists can furnish useful advice concerning possj.ble adverse reactions and drug interactions. They also can furnish complete information to the patient concerning the identity of the medication being dispensed. The era of mystification in the provision of health care services seems to be passing. The concept of clinical pharmacy appears to hold significant promise for optimizing patient care. Thus, once standards have been developed to delineate the appropriate role of a community pharmacist, the insurance program could be expected to stress ways by which he may parti-
• Several perceptive articles on this sub;ect appeared in JAPhA, NS4 (Aprill964)
cipate in the concurrent review function. Members of state boards of pharmacy, faculty members, professors, association leaders and community pharmacists have all extolled the virtues of patient medication records. An expert pharmacist who systematically records and interprets the patient medication record can undoubtedly contribute to his effective use of drug therapy. The need for and nature of this contribution cannot be covered here.* There are, however, serious administrative implications arising out of the application of the current drug history system and this aspect is relevant to the discussion. Suppose that a government drug program would recognize the value of patient drug histories and require that participating pharmacic.> provide this service. Expansion of the current manual system to encompass every pharmacy, though, would not be prudent until the following problems are overcome. ( 1) Some pharmacists are not qualified to properly advise patients on all medication problems which might arise. (2) A manual system requires an inordinate amount of time to maintain and implement. This limitation will reduce further the effective supply of pharmacists. In light of a probable shortage of up to 70,000 pharmacists by 1975,3 one should consider carefully the adoption of measures which would aggravate the manpower problem. Furthermore, inefficient implementation of a patient medication record system will raise operating costs of vendors and thus disrupt efforts of the drug program administrator to effectively control reimbursement policy. ( 3) The manual drug history method can also be criticized because many pharmacists apparently record current prescription information in a haphazard fashion. (Indeed, David Knapp reported several years ago that a time lag of over one week was not uncommon .) (4) Finally, the manual system, in order to be complete, must tie a particular patient to a single pharmacy. Because freedom of choice concerning selection of professional services has significant advantages for both the patient and a drug program, it seems unlikely that a large government program would overlook this fact. The objective of an efficient patient medication record system, one which does not aggravate the manpower shortage nor curtail patient fredom, can be realized better by the creation of a patient medication record data bank that is accessible to all health professionals. Of course, procedures vvill have to be established so that confidentiality
standards are not bypassed. This patient record function could be developed as a byproduct of the terminal/ central computer system which is required to process the very large number of prescription claims that would be generated by the insurance program. Naturally, many technological and economic problems have to be surmounted before the data bank and claim processing system concepts become a reality. Nevertheless, any program which stresses optimum patient care, controllable reimbursement policy and low administrative expenses could be expected to establish methods capable of meeting these goals. Community pharmacy responsibilities, therefore, will be modified as pharmacists participate in the operation of such systems. Toward this end, community pharmacists should assess their interest in and capabilities for assuming increased professional responsibilities in these areas . Minimize Program Outlays The second objective of drug insurance which will influence community pharmacy operations may be found in the development of various methods to lim it benefit and administrative outlays. The general provision that tax monies should be spent prudently is not likely to be put aside in the shaping of a drug program. Compensation of providers, therefore, may be governed by standards which restrict remuneration to levels which are just and reasonable. Given this approach, the community pharmacist would perceive quickly that the question of prescription charges is no longer an exclusively private matter between him and his patien·ts. Consequently, he will have to re-orient his thinking about charges for dispensing services to accommodate the specifications of a third party. Such a philosophical problem could prove to be more difficult for some vendors than adjusting to the actual mode of compensation itself. A somewhat similar difficulty may confront the community pharmacist as he discovers that answers to the question of reimbursement cannot be found through bargaining nor subjective efforts to establish a cost ~asis for his service. Of course, legislative enactment of a drug program could stress such techniques. But the weight of evidence today, in my opinion suggests that the pharmacist would be prepared better for participat~on in a third-party drug program If he created a more objective basis for measuring the economic value of his contribution. Given this frame of reference, community pharmacists might ~nticip~te that reimbursement for dispensmg Vol. NSll. No. 6. June 1971
335
services would be established on an outlet by outlet basis and subjected to comparisons that reflected reasonably efficient operations by competitors in similar circumstances. Among other things, such an approach means that record-keeping by community pharmacists with respect to both services rendered and costs incurred will have to leave the dark ages and enter into the 20th century. More specifically, the inability to determine product cost accurately because of cash and noncash adjustment will be replaced by better methods. Of even greater importance, prudent management of drug inventory and allocation of costs sustained jointly by the prescription department and the front-end can be expected. Improved cost accounting techniques can also be advocated to ensure that prescription charges to private patients are not inflated because of government drug benefits. Nor should patrons purchasing chewing gum, flashlight batteries and similar items be expected to subsidize users of prescription services. A cost accounting revolution in community pharmacy, therefore, is required to prevent the occurrence of such a problem. Because a gov,ernment drug program is likely to be subject to the general constraint of public accountability, prescription charges based upon usual and customary fees would make it difficult to achieve this objective. Only when the program administrator can examine product cost and overhead expenses in isolation can he begin to meet such a responsibility. Since each cost factor must be evaluated independently, it would seem that pharmacist could aid in this task by suggesting efficient techniques for realizing this end. Another aspect of keeping expenditure categories clean is manifest in the problem of payment for mechanical or electronic devices used to transmit claim information to the insurance carrier. Charges for such hardware are legitimate expenses against those persons banding together to purchase drug insurance protection. Contemporary practices on the part of many private and some public drug programs, however, demand that the vendor buy such equipment and/or tender a participation fee. Expenditures of this nature must be recovered by the pharmacist through increased prescription prices or absorbed in the form of lower profits. Such costs, of course, are a legitimate part of program administrative expenditures and should be reflected in these outlays.
0 One should not overlook another requirement -_complete information regarding the prescriptwn medication dispensed-which is also essential for effective program administration.
336
Otherwise, the community pharmacist would be blamed for rising prescription costs and the drug program administrator credited with low administrative expenses. In both cases, though, the interpretation would be incorrect. Expenditures for drug insurance benefits can be minimized not only by accurately measuring and prudently controlling product cost and vendor overhead compensation, but also by creating a highly efficient mechanism for administering the program. If the typical prescription is valued at four dollars, and the patient is required. to make one dollar copayment for each script, you can see that administrative expenses per claim have to fall to 15 cents in order to yield a rate of five percent. Very few drug programs today begin to even approximate that level of efficiency. Moreover, there is no evidence to lead us to believe that any contemporary system could handle ev,en 20 percent of the annual claim volume-perhaps 400,000,000-which would be reached soon after the start of a drug program for aged persons. These twin constraints*-low average benefit and very high prescription claim volume-combine to create an administrative problem which has never been faced before. It would seem, therefore, that a radically different system for submitting and processing drug insurance claims must be created before prescription benefits could be provided under a large government program. The existence of such a sophisticated terminal/computer network will have a pronounced effect on community pharmacy operations of the future and several of these implications will be examined as we turn to our next administrative goal, prudent program management. Manifest Prudent Management It may be anticipated that a drug program would incorporate various features which can be administered effectively and efficiently. In constructing the appropriate format, the necessity for relying exclusively on vendor reimbursement and a terminal/ computer system for claim processing should be understood. The current annual claim volume for the entire Medicare program is running at the rate of nearly 50,000,000 claims. Although it might be possible to operate a drug program which generated a similar volume, the use of paper forms and subsequent key-punching requirements would soon limit the ability of an administrator to even carry out the simplest of operations such as paying claims. This limit rises to the extent that patient reimbursement is replaced by vendor reimbursement and to the extent that certain processing functions can be automated. Perhaps
Journal of the AMERICAN PHARMACEUTICAL ASSOCIATION
the technological limit in this respect is between 80,000,000 and 120,000,000 pvescription claims per year. (Indeed, it may be lower than the former figure.) Just as it is impossible to land a spaceship on the sun, it is likewise impossible to process more than a given number of prescription claims unLess the mechanism provides for source data automation. Source data automation alone, of course, does not guarantee program success but its absence does guarantee failure. The implications of this technological limitation for the community pharmacist should be obvious. First, regardless of particular preferences, only a system of vendor reimbursement is feasible for a large drug insurance program. Secondly, a system using terminals and regional computers will be practical only when pharmacists accept them and become proficient in their use. Indeed, the pharmacist should look upon such equipment as an aid in improving his productivity and facilitating the handling of larger prescription volumes in the future. A third implication of this technological factor should be noted. Reimbursement of vendors according the usual and cus,tomary concept is not an administerable provision once annual claim volume surpasses 100,000,000 to 150,000,000. Computer evaluation of such charges may be possible for some two-thirds of the prescription claims received by the program administrator. The receipt of prescription medications with nonstandard quantities, coupled with errors in other fields of information, however, will necessitate manual review of the remainder. Once this number exceeds a given limit, administrative costs per claim processed rise sharply and could easily exceed the net benefit of perhaps three dollars. Even if the cost parameter can be kept within bounds, a program of 300,000,000 to 400,000,000 prescription claims per year could grind to a halt if the number requiring manual evaluation exceeded 20,000,000 to 30,000,000. Reliance on the usual and customary charge method of reimbursement, however, would generate more than 100,000,000 claims for manual review. Regardless of the magnitude of this discrepancy, a defunct program is still a defunct program. Prudent administration of a drug insurance program suggests additional constraints. It requires that vendors submit claims promptly, perhaps within 12 hours after dispensing the medication. Indeed, one terminal design would make dispensing and claim recording an almost simultaneous transaction. Pharmacists, therefore, can expect to lose the discretion of submitting
claims at their convenience as may be found in many health care programs today. If useful patient drug histories are to be maintained, if utilization review is to be carried out, if program dispersements are to be monitored effectively, and if problems of fraud are to be kept under control, prompt filing of claims is a prerequisite to prudent administration of a drug insurance program. The last item pertaining to the management of a drug insurance scheme which will be covered today deals with the objective of ensuring program integrity. This means, among other things, that pharmaceutical services would be provided by vendors only to persons eligible for coverage and only within the scope of benefits specified under the law. As before, complete, prompt and accurate claim filing will be required on the part of community pharmacists in order to help the administrator achieve this goal. One should also be prepared to face the fact that the provision of benefits under a government program will be regarded by some vendors as an invitation to engage in fraudulent activities. Pharmacists have been known to substitute a lower cost product but bill the carrier for the higher cost item which was ordered, to engage in short filling, to collaborate with physicians in the submission of claims for prescriptions not dispensed, to claim that a renewal was picked up when none was furnished and so forth. It is not my purpose to catalogue all the problems of this type that may arise under a drug program. Let it be noted simply that those with administrative responsibility will find it necessary to utilize a disciplinary mechanism which provides objective, systematic and effective procedures for dealing with such deviations. Perhaps peer review procedures operated by state or local pharmacy associations can be developed to meet this need. If so, those pharmacists interested in the successful administration of drug benefits should take the leadership to develop and / or perfect professional review mechanisms that will achieve this goal.
government endeavors, should manifest sufficient predictability so that a satisfactory budget can be prepared. The number of prescription orders dispensed times their average cost plus administrative expenses will govern total program outlays. The inability of administrative officials to "control" these factors adequately can be expected to result in HEW or congressional analysis of the program and perhaps even produce drastic modification in its design. Thus, community pharmacists have a major stake in the successful operation of a program which governs pharmaceutical services. This means that a large number of pharmacists, including leaders of national, state and local associations, must become acquainted with methods for reviewing utilization, ensuring that reimbursement policies are consistent with the economic guidelines set forward in the statute, and developing efficient administrative procedures. Despite the significance of fiscal predictability in contributing to the success of a drug program, one should keep in mind that additional considerations may be raised. For example, if helping patients obtain the medications which they need is a more basic goal of the program, fiscal predictability could prove to be an elusive concept.* A more relevant inquiry, however, might seek to determine whether patient health is being optimized through the provision of drug benefits, whether product and vendor reimbursements are consistent with sound economic principles and whether administrative functions are being performed efficiently. If the answers to these questions are in the affirmative, the issue of fiscal predictability may well recede in importance. Moreover, one cannot neglect the fact that fiscal predictability is a function of two factors; program expenditures and the expert actuarial advice used to prepare a budget figure. Now it should be obvious that variations between these two sums only proves ·t hat a discrepancy exists-it doesn't establish whether the program is running out of control or whether an unrealistic budget estimate was submitted.
Ensure Fiscal Predictability
Summary
The final objective concerns the need to confine drug program expenditures to budget allocations. Thus, a medication scheme, like other
We have endeavored to outline some of the major changes in community pharmacy operations that might be anticipated if the government decided to provide prescription medication insurance coverage for some important group in our society. In the absence of such a program, the description has relied more on interpretation and analysis than the
• Health care programs do not possess the budget stability that is inherent in employing 416 peo ple or in purchasing 119 typewriters. The sooner this difference is understood, both health care administrators and budget makers can turn to more basic questions, such as those noted.
surer basis of statutory proviSlons. If there is any theme in the foregoing comments, it would seem to be tha•t the administration of a drug benefits program is far more complex than can be implied from the typical pharmacist's concern as manifest in the frequently heard question, ''When do I get paid?" Indeed, application of clinical pharmacy concepts at the community level will have to develop significantly over the next several years if any third-party program is to be successful in helping its patients receive the most appropriate medication. Moreover, pharmacists will have to record considerable progress in measuring more accurately expenses associated with the dispensing function. Many of the duties inherent in forwarding claim information to the carrier will probably be overcome as vendors are provided with a highly efficient terminal to transmit claim data directly to central computers. Additional refinements in community pharmacy activities can be expected as program administrators carry out their responsibilities. Numerous forces, of course, could alter the pattern described above. Yet, I know of no easy way to assess the possible impact of vested interests, changing national priorities, the problem of inertia, technological and political difficulties in creating a single claim processing network and a host of similar factors . Their influence will be revealed in time. But one conclusion seems reasonably certain. The administrative requirements of a government drug program could, in one way or another, be construed as an interference in the traditional practice of community pharmacy. Upon reflection, however, it should be apparent that these same problems can be regarded also as an opportunity for community pharmacists to raise their standards of pharmaceutical services, become more efficient in their operations and develop cost accounting techniques that accurately reflect the true economic burden of dispensing. Members of the National Pharmacy Insurance Council could make a valuable contribution both to the provision of pharmaceutical services and the successful administration of a drug program if they study these and other objectives which bear upon this problem. • References 1. Public Law 90-248, Section 237 2. F or example, see lAMA, 213, 264- 267, 9961006, 1445-1460 3 . Rucke r T. D onald, and Sobaski, William J., "Phar~acy Manpower Tomorrow," paper presented before APhA, Houston ( Oct. 25, 1970 )
Vol. NSll, No . 6, June 1971
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T. Donald Rucker has been chief of drug studies, health insurance stu(i.ies branch in the office of research and statistics, Social Security Administration, HEW, since 1965. Previously, he was an economist for Blue Shield, Detroit Board of Commerce director of economics and research, industrial relations analyst and college lecturer and assistant professor~ He is a member of the American Statistical Association, American Public Health Association and the American Economic Association. Rucker has published a number 9! articles on economic aspects of health.
ur purpose is twofold. First, we will suggest some of the major O administrative requirements that seem likely under a government-sponsored drug insurance program. Secondly, we will evaluate these factors in terms of their possible impact on the future delivery of pharmaceutical services. No attempt will be made to cover administrative functions which might have little or no affect on community pharmacy. It should be obvious that these developments will be shaped directly by those provisions found in the legislative specifications for a drug program as well as in regulations that are issued to support its implementation. The current Medicare program does not cover prescribed drugs for ambulatory patients. Numerous proposals have been introduced in the Congress to expand health care coverage for aged persons by adding drug benefits. The Administration, though, has not endorsed any of these measures and, therefore, it would be inappropriate to discuss the future role of ph~rmacy in relationship to a particular proposal. One might attempt to use the federalstate Medicaid drug programs as a point of reference but the variability here would make such an analysis difficult. Consequently, we will discuss instead a theoretical model which outlines major administrative requiremep.ts that might be associated witp a large
0 Presented before a meeting of the National Pharmacy Insurance Council, Washington, D.C., N ovember 30, 1970.
334
drug program. One legislative provision, however, has already been promulgated and it may be indicative of congressional intent for future programs and thus illustrate the corresponding duties which must be carried out by the administrator. This example, which pertains to Title 19 programs, requires that program officials take steps which ". . . are necessary to safeguard against unnecessary utilization of such care . . . and to assure that payments . . . are not in excess of reasonable charges consistent with efficiency, economy and quality of care." i In addition to this guideline, our model assumes that a drug program would have to process at least 400,000,000 claims per year and rely heavily on the distribution facilities of community pharmacies. The possibility of government-owned pharm~cies is, of course, a topic that has generated great concern. Because it seems most unlikely that government pharmacies could become the dominant mechanism for providing patients with pharmaceutical services in the near and intermediate future, it would seem more useful for your purposes if I would examine the subject at hand by assuming that privately-owned pharmacies will continue to play a significant role. One should keep in mind, though, that unresponsiveness on the part of community pharmacy to both drug program and public service needs is likely to provoke increased interest in the development of radically different ways of furnishing patients with drug services.
Journal of the AMERICAN PHARMACEUTICAL ASSOCIATION
Optimize Patient Care Let's begin our analysis by examining optimization of patient care as the first possible objective of a drug insurance program. This means simply that the administrator would develop ~echniques to ensure that eligible beneficiaries obtain the right prescription medication in the right quantity and dosage form at the right time. Such effor.ts would constitute the major focus of a "drug utilization review program." Within limits, it i~ possible through utilization review also to encourage physicians to select low-cost therapeutic agents instead of higher cost alternatives. Because such cases usually will encompass no more than 40 percent of the total number of covered prescriptions, and because these educational steps cannot pe relied upon to yield certain and quick results, reimbursement policy for product cost and for pharmacy overhead expenses must b~ designed to carry the major burden of program cost control. Moreover, in light of the physician and pharmacist shortage, it would seem foolish to insist that professionals be~ome preoccupied with cost control to such an extent that optimization of patient care received very little attention. This situ~tion suggests a principle of drug insurance administration, namely, specialization of function. Thus, professionals would be expected to give primary attention to those areas where they can make the greatest contribution to improve patient health, i.e., the selection and dispensing of appropriate medications. In a similar fashion, the insurance program would assume primary responsibility for analysis and determination of reimbursement policy. Distortion of these respective roles is not likely to ensure either optimum patient care or minimum program cost. Contemporary drug programs have not often given the goal of patient care such a high priority. They have been preoccupied usually with paying
claims and attempting to catch up with providers or beneficiaries who were endeavoring to defraud the program. Because not all prescribing today is rationai2 and because a goal of optimizing patient care holds great promise for both raising health standards and controlling program cost, it seems reasonable to prediot that the functions noted above, which are the more traditional administrative ones, will no longer dominate program operations. Consequently, I am going to assume that a large, national drug program would devote major attention to methods for improving patient care. Given such a pr"iority, it may be expected that community pharmacists would play an appropriate role in achieving the indicated objective. This means that they would (a) participate in review activities conducted by the drug insurance program, (b) consult with patients concerning the proper use of medications and (c) interpret Additional patient drug histories. functions related to optimization of patient care might be proposed, but time permits only a brief examination of each of these items. The first area related to improved patient care is the involvement of community pharmacists, along with other health professionals, in retrospective review activities sponsored by the drug program. Mechanisms for realizing this goal and defining responsibilities of the respective professions are, however, still in a nascent stage of development. Because this particular review funotion will be unrelated to dispensing, the drug program would be expected to establish a separate method for compensating professionals who participate in this manner. The second general area related to improved patient drug use is found in consultation services provided by the community pharmacist. Of course, this function is inherent in the proper interpretation of patient medication records. Let me just note quickly that pharmacists can furnish useful advice concerning possj.ble adverse reactions and drug interactions. They also can furnish complete information to the patient concerning the identity of the medication being dispensed. The era of mystification in the provision of health care services seems to be passing. The concept of clinical pharmacy appears to hold significant promise for optimizing patient care. Thus, once standards have been developed to delineate the appropriate role of a community pharmacist, the insurance program could be expected to stress ways by which he may parti-
• Several perceptive articles on this sub;ect appeared in JAPhA, NS4 (Aprill964)
cipate in the concurrent review function. Members of state boards of pharmacy, faculty members, professors, association leaders and community pharmacists have all extolled the virtues of patient medication records. An expert pharmacist who systematically records and interprets the patient medication record can undoubtedly contribute to his effective use of drug therapy. The need for and nature of this contribution cannot be covered here.* There are, however, serious administrative implications arising out of the application of the current drug history system and this aspect is relevant to the discussion. Suppose that a government drug program would recognize the value of patient drug histories and require that participating pharmacic.> provide this service. Expansion of the current manual system to encompass every pharmacy, though, would not be prudent until the following problems are overcome. ( 1) Some pharmacists are not qualified to properly advise patients on all medication problems which might arise. (2) A manual system requires an inordinate amount of time to maintain and implement. This limitation will reduce further the effective supply of pharmacists. In light of a probable shortage of up to 70,000 pharmacists by 1975,3 one should consider carefully the adoption of measures which would aggravate the manpower problem. Furthermore, inefficient implementation of a patient medication record system will raise operating costs of vendors and thus disrupt efforts of the drug program administrator to effectively control reimbursement policy. ( 3) The manual drug history method can also be criticized because many pharmacists apparently record current prescription information in a haphazard fashion. (Indeed, David Knapp reported several years ago that a time lag of over one week was not uncommon .) (4) Finally, the manual system, in order to be complete, must tie a particular patient to a single pharmacy. Because freedom of choice concerning selection of professional services has significant advantages for both the patient and a drug program, it seems unlikely that a large government program would overlook this fact. The objective of an efficient patient medication record system, one which does not aggravate the manpower shortage nor curtail patient fredom, can be realized better by the creation of a patient medication record data bank that is accessible to all health professionals. Of course, procedures vvill have to be established so that confidentiality
standards are not bypassed. This patient record function could be developed as a byproduct of the terminal/ central computer system which is required to process the very large number of prescription claims that would be generated by the insurance program. Naturally, many technological and economic problems have to be surmounted before the data bank and claim processing system concepts become a reality. Nevertheless, any program which stresses optimum patient care, controllable reimbursement policy and low administrative expenses could be expected to establish methods capable of meeting these goals. Community pharmacy responsibilities, therefore, will be modified as pharmacists participate in the operation of such systems. Toward this end, community pharmacists should assess their interest in and capabilities for assuming increased professional responsibilities in these areas . Minimize Program Outlays The second objective of drug insurance which will influence community pharmacy operations may be found in the development of various methods to lim it benefit and administrative outlays. The general provision that tax monies should be spent prudently is not likely to be put aside in the shaping of a drug program. Compensation of providers, therefore, may be governed by standards which restrict remuneration to levels which are just and reasonable. Given this approach, the community pharmacist would perceive quickly that the question of prescription charges is no longer an exclusively private matter between him and his patien·ts. Consequently, he will have to re-orient his thinking about charges for dispensing services to accommodate the specifications of a third party. Such a philosophical problem could prove to be more difficult for some vendors than adjusting to the actual mode of compensation itself. A somewhat similar difficulty may confront the community pharmacist as he discovers that answers to the question of reimbursement cannot be found through bargaining nor subjective efforts to establish a cost ~asis for his service. Of course, legislative enactment of a drug program could stress such techniques. But the weight of evidence today, in my opinion suggests that the pharmacist would be prepared better for participat~on in a third-party drug program If he created a more objective basis for measuring the economic value of his contribution. Given this frame of reference, community pharmacists might ~nticip~te that reimbursement for dispensmg Vol. NSll. No. 6. June 1971
335
services would be established on an outlet by outlet basis and subjected to comparisons that reflected reasonably efficient operations by competitors in similar circumstances. Among other things, such an approach means that record-keeping by community pharmacists with respect to both services rendered and costs incurred will have to leave the dark ages and enter into the 20th century. More specifically, the inability to determine product cost accurately because of cash and noncash adjustment will be replaced by better methods. Of even greater importance, prudent management of drug inventory and allocation of costs sustained jointly by the prescription department and the front-end can be expected. Improved cost accounting techniques can also be advocated to ensure that prescription charges to private patients are not inflated because of government drug benefits. Nor should patrons purchasing chewing gum, flashlight batteries and similar items be expected to subsidize users of prescription services. A cost accounting revolution in community pharmacy, therefore, is required to prevent the occurrence of such a problem. Because a gov,ernment drug program is likely to be subject to the general constraint of public accountability, prescription charges based upon usual and customary fees would make it difficult to achieve this objective. Only when the program administrator can examine product cost and overhead expenses in isolation can he begin to meet such a responsibility. Since each cost factor must be evaluated independently, it would seem that pharmacist could aid in this task by suggesting efficient techniques for realizing this end. Another aspect of keeping expenditure categories clean is manifest in the problem of payment for mechanical or electronic devices used to transmit claim information to the insurance carrier. Charges for such hardware are legitimate expenses against those persons banding together to purchase drug insurance protection. Contemporary practices on the part of many private and some public drug programs, however, demand that the vendor buy such equipment and/or tender a participation fee. Expenditures of this nature must be recovered by the pharmacist through increased prescription prices or absorbed in the form of lower profits. Such costs, of course, are a legitimate part of program administrative expenditures and should be reflected in these outlays.
0 One should not overlook another requirement -_complete information regarding the prescriptwn medication dispensed-which is also essential for effective program administration.
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Otherwise, the community pharmacist would be blamed for rising prescription costs and the drug program administrator credited with low administrative expenses. In both cases, though, the interpretation would be incorrect. Expenditures for drug insurance benefits can be minimized not only by accurately measuring and prudently controlling product cost and vendor overhead compensation, but also by creating a highly efficient mechanism for administering the program. If the typical prescription is valued at four dollars, and the patient is required. to make one dollar copayment for each script, you can see that administrative expenses per claim have to fall to 15 cents in order to yield a rate of five percent. Very few drug programs today begin to even approximate that level of efficiency. Moreover, there is no evidence to lead us to believe that any contemporary system could handle ev,en 20 percent of the annual claim volume-perhaps 400,000,000-which would be reached soon after the start of a drug program for aged persons. These twin constraints*-low average benefit and very high prescription claim volume-combine to create an administrative problem which has never been faced before. It would seem, therefore, that a radically different system for submitting and processing drug insurance claims must be created before prescription benefits could be provided under a large government program. The existence of such a sophisticated terminal/computer network will have a pronounced effect on community pharmacy operations of the future and several of these implications will be examined as we turn to our next administrative goal, prudent program management. Manifest Prudent Management It may be anticipated that a drug program would incorporate various features which can be administered effectively and efficiently. In constructing the appropriate format, the necessity for relying exclusively on vendor reimbursement and a terminal/ computer system for claim processing should be understood. The current annual claim volume for the entire Medicare program is running at the rate of nearly 50,000,000 claims. Although it might be possible to operate a drug program which generated a similar volume, the use of paper forms and subsequent key-punching requirements would soon limit the ability of an administrator to even carry out the simplest of operations such as paying claims. This limit rises to the extent that patient reimbursement is replaced by vendor reimbursement and to the extent that certain processing functions can be automated. Perhaps
Journal of the AMERICAN PHARMACEUTICAL ASSOCIATION
the technological limit in this respect is between 80,000,000 and 120,000,000 pvescription claims per year. (Indeed, it may be lower than the former figure.) Just as it is impossible to land a spaceship on the sun, it is likewise impossible to process more than a given number of prescription claims unLess the mechanism provides for source data automation. Source data automation alone, of course, does not guarantee program success but its absence does guarantee failure. The implications of this technological limitation for the community pharmacist should be obvious. First, regardless of particular preferences, only a system of vendor reimbursement is feasible for a large drug insurance program. Secondly, a system using terminals and regional computers will be practical only when pharmacists accept them and become proficient in their use. Indeed, the pharmacist should look upon such equipment as an aid in improving his productivity and facilitating the handling of larger prescription volumes in the future. A third implication of this technological factor should be noted. Reimbursement of vendors according the usual and cus,tomary concept is not an administerable provision once annual claim volume surpasses 100,000,000 to 150,000,000. Computer evaluation of such charges may be possible for some two-thirds of the prescription claims received by the program administrator. The receipt of prescription medications with nonstandard quantities, coupled with errors in other fields of information, however, will necessitate manual review of the remainder. Once this number exceeds a given limit, administrative costs per claim processed rise sharply and could easily exceed the net benefit of perhaps three dollars. Even if the cost parameter can be kept within bounds, a program of 300,000,000 to 400,000,000 prescription claims per year could grind to a halt if the number requiring manual evaluation exceeded 20,000,000 to 30,000,000. Reliance on the usual and customary charge method of reimbursement, however, would generate more than 100,000,000 claims for manual review. Regardless of the magnitude of this discrepancy, a defunct program is still a defunct program. Prudent administration of a drug insurance program suggests additional constraints. It requires that vendors submit claims promptly, perhaps within 12 hours after dispensing the medication. Indeed, one terminal design would make dispensing and claim recording an almost simultaneous transaction. Pharmacists, therefore, can expect to lose the discretion of submitting
claims at their convenience as may be found in many health care programs today. If useful patient drug histories are to be maintained, if utilization review is to be carried out, if program dispersements are to be monitored effectively, and if problems of fraud are to be kept under control, prompt filing of claims is a prerequisite to prudent administration of a drug insurance program. The last item pertaining to the management of a drug insurance scheme which will be covered today deals with the objective of ensuring program integrity. This means, among other things, that pharmaceutical services would be provided by vendors only to persons eligible for coverage and only within the scope of benefits specified under the law. As before, complete, prompt and accurate claim filing will be required on the part of community pharmacists in order to help the administrator achieve this goal. One should also be prepared to face the fact that the provision of benefits under a government program will be regarded by some vendors as an invitation to engage in fraudulent activities. Pharmacists have been known to substitute a lower cost product but bill the carrier for the higher cost item which was ordered, to engage in short filling, to collaborate with physicians in the submission of claims for prescriptions not dispensed, to claim that a renewal was picked up when none was furnished and so forth. It is not my purpose to catalogue all the problems of this type that may arise under a drug program. Let it be noted simply that those with administrative responsibility will find it necessary to utilize a disciplinary mechanism which provides objective, systematic and effective procedures for dealing with such deviations. Perhaps peer review procedures operated by state or local pharmacy associations can be developed to meet this need. If so, those pharmacists interested in the successful administration of drug benefits should take the leadership to develop and / or perfect professional review mechanisms that will achieve this goal.
government endeavors, should manifest sufficient predictability so that a satisfactory budget can be prepared. The number of prescription orders dispensed times their average cost plus administrative expenses will govern total program outlays. The inability of administrative officials to "control" these factors adequately can be expected to result in HEW or congressional analysis of the program and perhaps even produce drastic modification in its design. Thus, community pharmacists have a major stake in the successful operation of a program which governs pharmaceutical services. This means that a large number of pharmacists, including leaders of national, state and local associations, must become acquainted with methods for reviewing utilization, ensuring that reimbursement policies are consistent with the economic guidelines set forward in the statute, and developing efficient administrative procedures. Despite the significance of fiscal predictability in contributing to the success of a drug program, one should keep in mind that additional considerations may be raised. For example, if helping patients obtain the medications which they need is a more basic goal of the program, fiscal predictability could prove to be an elusive concept.* A more relevant inquiry, however, might seek to determine whether patient health is being optimized through the provision of drug benefits, whether product and vendor reimbursements are consistent with sound economic principles and whether administrative functions are being performed efficiently. If the answers to these questions are in the affirmative, the issue of fiscal predictability may well recede in importance. Moreover, one cannot neglect the fact that fiscal predictability is a function of two factors; program expenditures and the expert actuarial advice used to prepare a budget figure. Now it should be obvious that variations between these two sums only proves ·t hat a discrepancy exists-it doesn't establish whether the program is running out of control or whether an unrealistic budget estimate was submitted.
Ensure Fiscal Predictability
Summary
The final objective concerns the need to confine drug program expenditures to budget allocations. Thus, a medication scheme, like other
We have endeavored to outline some of the major changes in community pharmacy operations that might be anticipated if the government decided to provide prescription medication insurance coverage for some important group in our society. In the absence of such a program, the description has relied more on interpretation and analysis than the
• Health care programs do not possess the budget stability that is inherent in employing 416 peo ple or in purchasing 119 typewriters. The sooner this difference is understood, both health care administrators and budget makers can turn to more basic questions, such as those noted.
surer basis of statutory proviSlons. If there is any theme in the foregoing comments, it would seem to be tha•t the administration of a drug benefits program is far more complex than can be implied from the typical pharmacist's concern as manifest in the frequently heard question, ''When do I get paid?" Indeed, application of clinical pharmacy concepts at the community level will have to develop significantly over the next several years if any third-party program is to be successful in helping its patients receive the most appropriate medication. Moreover, pharmacists will have to record considerable progress in measuring more accurately expenses associated with the dispensing function. Many of the duties inherent in forwarding claim information to the carrier will probably be overcome as vendors are provided with a highly efficient terminal to transmit claim data directly to central computers. Additional refinements in community pharmacy activities can be expected as program administrators carry out their responsibilities. Numerous forces, of course, could alter the pattern described above. Yet, I know of no easy way to assess the possible impact of vested interests, changing national priorities, the problem of inertia, technological and political difficulties in creating a single claim processing network and a host of similar factors . Their influence will be revealed in time. But one conclusion seems reasonably certain. The administrative requirements of a government drug program could, in one way or another, be construed as an interference in the traditional practice of community pharmacy. Upon reflection, however, it should be apparent that these same problems can be regarded also as an opportunity for community pharmacists to raise their standards of pharmaceutical services, become more efficient in their operations and develop cost accounting techniques that accurately reflect the true economic burden of dispensing. Members of the National Pharmacy Insurance Council could make a valuable contribution both to the provision of pharmaceutical services and the successful administration of a drug program if they study these and other objectives which bear upon this problem. • References 1. Public Law 90-248, Section 237 2. F or example, see lAMA, 213, 264- 267, 9961006, 1445-1460 3 . Rucke r T. D onald, and Sobaski, William J., "Phar~acy Manpower Tomorrow," paper presented before APhA, Houston ( Oct. 25, 1970 )
Vol. NSll, No . 6, June 1971
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