Third-Party Reimbursement

How Did We Get Where WeAre 10day?

By JEAN PAUL GAGNON

Jean Paul Gagnon, PhD, is professor of pharmacy administration at the University of North Carolina School of Pharmacy, Chapel Hill, NC 27514. A copy of the original manuscript including a complete list of references is available from the editor.

American Pharmacy Vol. NS20, No. 12, December 19801703

A s early as 1966 there were predictions that drug costs would be the next portion of the uninsured frontier to fall. In 1970 there were proclamations that by 1975, 70% of outpatient prescription charges would be covered under programs offered by third-party payers. Neither prophecy materialized. In fact, third-party prescription programs' share of total outpatient prescriptions leveled in 1974 at approximately 25% and has remained at this point for the last five years (see graph p. 33). The fact remains, however, that third-party drug payments amount to more than $2 billion a year. Even 31

without the continued efforts by legislators to expand national health coverage, third-party payments for drugs will grow dramatically. For the past decade, pharmacists have wrestled with problems of third-party reimbursement. On what basis and at what level should pharmacists be paid for their services? This question has plagued not only the pharmacy community, but also third-party administrators and the courts ever since outpatient prescription drug coverage was conceived. Early Programs As early as 1930 a New York pharmacist offered to dispense all prescriptions to individual customers for a fee of 50 cents a week. Even though the charge rate was reduced to 25 cents, this plan failed. In fact, the prepaid prescription plan did not formally reappear until 1958, when Prescription Services, Inc., a Canadian prepaid drug plan, was established in Windsor, Ontario. The plan was started and managed by pharmacists. The membership fee was $150 per year per pharmacist, repayable without interest in 10 years. Consumer groups were permitted to join if they had five or more members. The initial charge to consumers was 95 cents

per person per month or a varying family rate. Limits on the number and type of prescriptions were preset. Member pharmacies billed monthly for ingredient costs plus a fixed $1.70 professional fee. A fixed fee method of reimbursement was initially used by third-party payers because it was easy to monitor, control, and use in forecasting program costs. Prescription Services initially experienced a significant amount of adverse selection of beneficiaries and sought to insure larger groups. Because the average charge per prescription was higher than noncovered prescriptions, the premium was doubled in six months. After four years the plan was running successfully. As a result of the Windsor experience, pharmacists in California, New York and Ohio began to express an interest in the third-party prescription concept. They were enthusiastic about prescription insurance for a number of reasons: • Since a certain percentage of prescriptions written are not dispensed, a prepaid drug plan would assist pharmacists in capturing the lost business; • Pharmacists know they will be paid for prescriptions they dispense for prepaid drug prescribers (there

will be few bad debt collection problems); • Under such plans it is possible to shift the cost of drugs from consumers to a third party. Although the concept was sound, many operational problems existed, most notably how to reimburse pharmacists for their services without violating federal antitrust laws. Pharmacist-Owned Plans In 1959, pharmacists interested in initiating third-party prescription plans approached the Federal Trade Commission for comment on the legality of pharmacist-owned drug plans. FTC's opinion was that such plans, if operated in interstate commerce, could be in violation of the Sherman Antitrust Act. FTC further stated that Blue Cross or any other private insurer would not be in violation because professional risk transferers sell one product (insurance) and the possibility of collusion between pharmacists and insurers is minimized. FTC did not address the legality of private insurers using the fixed professional fee for reimbt,trsing pharmacists. As a result of the 1959 FTC opinion and the growth of Prescription Services, a prepaid drug plan using the fixed fee method of reimbursement was initiated in 1963 by Blue

Methods of Reitnbursetnent

32

Professional fee

This is the amount third-party plans pay a pharmacy in addition to ingredient costs for dispensing services. It is the gross margin a pharmacist receives on a prescription.

Fixed fee

Every pharmacy receives the same amount from a thirdparty carrier regardless of operating costs and quality of service rendered.

Variable fee

The fee paid to individual pharmacies by a carrier differs from pharmacy to pharmacy because of variations in operating costs or services provided.

Usual and customary ,charges

These are the prices paid by cash-paying customers. They vary from pharmacy to pharmacy, the variances possibly due to differences in profit margins, operating costs, or other factors.

American Pharmacy Vol. NS20, No. 12, December 19801704

0/0

25

Prescription Drugs

f-

20 .... Medicaid 15 -

1 0 ~_

5

I-

Non Medicaid

0~--~1

1974

____~1____~1L-__~ 1976

1978

Cross of Wisconsin. After a few months of operation the program was terminated when it was learned that FTC planned to bring suit against Blue Cross for fixing prescription prices. FTC opposed the fixed fee method of reimbursement as a result of a 1961 antitrust suit in California. Donald Hedgpeth and the Northern California Pharmaceutical Association were sued by FTC for constructing and distributing prescription drug pricing schedules. Eventually, both parties were found guilty and fined for price fixing. The case was significant because pricing schedules or fixed fees were construed by the courts to be price fixing and thus in viola tion of Section 1 of the Sherman Antitrust Act. In 1964 the executive board of the California Pharmaceutical Association voted to initiate a nonprofit prepaid drug plan (P AID Prescriptions). In January 1965 it divorced the new corporation from the CPhA, and legal opinion was sought from the Justice Department. The Justice Department replied that no action would be taken if the pharmacist's compensation was based not on a fixed fee but rather on "usual and customary" charges and if the plan was open to all pharmacists, not just members. By November 1965, groups whose members amounted to 100,000 individuals had enrolled in the plan.

Medicaid Enacted In 1965, Title XIX of the Social Security Act (Medicaid) was enacted. This legislation marked the entry of the federal government into outpatient drug coverage. The federal government could offer financial support to states for health care needs, including limited outpatient prescription coverage. As a first step in implementation, the General Accounting Office investigated the prescription reimbursement methods by states before Medicaid was implemented. In 1967 it announced that the only prescription reimbursement schedules that were acceptable incorporated the use of a fixed professional fee. In its report it stated: The Department of Health, Education, and Welfare should establish a policy which would prohibit the use of methods for prescription reimbursement which were based on cost plus a percent of cost, or methods otherwise providing an incentive for the dispensing of higher cost products where suitable lower cost products meeting the prescription requirements are available. Also, the D HEW should encourage the use of methods based on cost of the product dispensed plus a fixed professional fee. Nongovernment third-party carriers, on reading this statement, may have felt that what was permissible for governmental prescription plans was also permissible for their plans. Within two years, Blue Cross and others had prescription prepayment plans in operation, again using the fixed professional fee. For a time, FTC took no action to initiate a price-fixing suit, and it seemed that the controversy over the method of professional service reimbursement was finally settled. In May 1969, however, the Virginia State Corporation Commission, acting on charges brought by pharmacists, conducted a hearing on Blue Cross's use of the fixed professional fee. These pharmacists believed that the fixed fee violated the Sherman Antitrust Act. Blue Cross countered by saying its contracts were a series of pacts between Blue Cross and individual pharmacies. A few months later, pharmacists in Illinois demanded and won an injunction halting the United Auto Workers prescription prepayment

American Pharmacy Vol. NS20, No. 12, December 1980/705

plan administered by Metropolitan Life for Caterpillar Tractor, Inc. Judge Robert Hunt at that time stated: Caterpillar's prescription prepayment plan was an illegal restraint of trade because it allowed the fixing of prices among competitors. The usual and customary charge, the judge said, was acceptable in a prescription prepayment plan, but the fixed professional fee forced nonparticipating pharmacies to adopt the fee or lose business. The injunction was appealed immediately by Metropolitan Life and Caterpillar. Illinois Supreme Court Judge Walter Schafer reversed the state circuit court's judgment and decreed that Caterpillar's prescription prepayment plan fell within the requirements of Illinois insurance laws and that the fixed professional fee provision did not involve illegal price fixing. Conflicting Court Decisi9ns In September 1970, however, the Virginia Supreme Court banned Blue Cross's uniform professional fee as a per se violation of federal and state antitrust laws.'" The ruling was completely contrary to the Illinois Supreme Court decision. Further, the Virginia court stated that although use of the fixed professional fee by private third parties was price fixing, use of a fixed fee by federal and state agencies was not. The court completely rejected the argument that the contracts Blue Cross made with the pharmacists were made unilaterally. Blue Cross did not appeal the decision to the Supreme Court. In 1970, S. Chesterfield Oppenheim warned the National Pharmacy Insurance Council that the Virginia court decision could open doors for future suits against other *!here was some question whether there was a per se violation. An Iowa Law Review article reported that such cases have involved an agreement dictating prices to parties not privy to the agreement. This did not directly occur in the Virginia suit. However, there was the possibility that fixed fee charges in the plan could become the uniform charge for pr~scriptions not covered under the plan. Blue Cross's prepaid plan should have been declared illegal using the "rule of reason" approach; i.e., because of the breadth of Section 1 of t~e Sherman Act and its ability to encompass every conceivable contract, combination, or conspiracy, an exercise of judgment is necessary when deciding whether in a given case a particular act has or has not brought about the wrong against which the statute applies. [See Iowa Law Rev., 56, 1071 (1971).]

33

Hindmnces to Reimbursement Since the inception of the first prepaid drug plan, pharmacists have been hindered from receiving equitable reimbursement for three major reasons: • Federal antitrust laws prevent collective negotiations with third-party carriers; • Data on pharmacy operating costs are lacking; • Pharmacists have not convinced either insurers or the public of the value of pharmacy services. All of these problems have placed pharmacists in an untenable position when it comes to bargaining with third-party administrators o~ the level of fees they should receive for dispensing prescriptions.

Antitrust laws

Pharmacists' ability to negotiate with third-party carriers has been stymied by federal antitrust laws that prevent pharmacists from collectively deciding whether to participate in third-party programs in general or in any specific fee programs. Moreover, association or foundation representatives may not engage in specific fee negotiations with any third-party administration. The penalties for violating the federal antitrust laws are severe: the offenses are felonies, and violators are exposed to expensive triple damage litigation. According to APhA's special counsel, Lewis Bernstein, local associations can supply data on operational costs or discuss methods of reducing administrative bur: dens, forms, and cash flow problems re-

suIting from delayed payment. To discuss fees, individual pharmacies must negotiate unilaterally with third-party administrators--a process that may overwhelm the average independent pharmacist. If the pharmacist considers the fee inappropriate, the carrier will enlist the support of one or more other pharmacies in the same community. However, the collective representation by a state or national association could equalize the balance of power between insurers and pharmacists. In addition to banning collective bargaining for fees, the federal antitrust laws prohibit boycotts or collective pharmacist refusals to participate in any program or to dispense prescriptiQns. Individual pharmacists can, however, refuse to participate in a third-party prescription program.

No Cost Data

The second hindrance to equitable reimbursement is the lack of reliable data on pharmacy operating costs, cost of administering third-party forms, and net profit. Pharmacists cannot supply complete balance sheets, income statements, and other miscellaneous data such as pharmacy square footage. APhA, through its Pharmacy Management Institute, has sought to correct this problem by developing the Uniform Cost Accounting System (UCAS). However, even if good data are available, there are conceptual problems on how costs should be allocated to the pharmacy prescription department. A symposium sponsored by the Economic, Social, and Administrative Sciences Section of the Academy of Pharmaceutical Sciences addressed this problem in 1976. The proceed-

ings were subsequently published by the National Center for Health Services Research. Very few individual insurers and government agencies have examined and defined the satisfactory net profit percentage a community pharmacist should receive. Governments regularly examine costs of operation but appear reluctant to discuss profits. Methods for determining the cost of dispensing a prescription have been sufficiently developed so that administrative costs can be documented. :A recent study of this issue, funded by APhA and the National Association of Chain Drug Stores, is currently being discussed by the Health Care Financing Administration.

PoorPR

The final obstacle to sufficient reimbursement for pharmacy services is that both insurers and consumers do not realize the extent of the services they receive. What is the cost-benefit ratio of patient

profiles or pharmacist consultations? Pharmacy has not convincingly proven the. value of these services to third-party administrators.

34

American Pharmacy Vol. NS20, No. 12, December 19801706

reimbursement systems, particularly the variable fee, because any conspiracy to fix prices (even though several different prices are "fixed") is considered illegal. If the U.S. Supreme Court ever rules that use of the fixed or variable fee is illegal price fixing, usual and customary charge may become the basis for reimbursement in third-party plans, Oppenheim said. A year later the National Association of Retail Druggists approached the Antitrust Division of the Justice Department, requesting that negotiations between pharmacy associations and third-party payers be declared acceptable under present antitrust law. NARD felt that this was the only solution to the problem, since use of the fixed fee was judged as price fixing in Virginia. After reviewing the proposal, Bruce B. Wilson of the Antitrust Division rejected it. Instead, he suggested that a task force of representatives of state welfare agencies, pharmacy, drug manufacturers, and consumers be formed to investigate the problem. He said that the Antitrust Division felt that the fixed professional fee did not violate antitrust laws, even though pharmacists knew that they were receiving the same professional fee as their competitors. He also said that Americans want third-party prescription plans but that use of usual and customary charges for professional service reimbursement is impractical, since it cannot be adequately con:trolled. Congressional Hearings A subcommittee on environmental problems affecting small business was convened by the U.S. House of Representatives to examine third-party prescription programs. The committee examined numerous complaints about thirdparty prescription programs and heard extensive testimony from pharmacy practitioners and thirdparty administrators. The following recommendations specific to the reimbursement problem were made: • The professional fee paid pharmacists for dispensing prepaid prescriptions should be flexible and based on variable factors; • To ensure that the operation of third-party plans is equitable to

all parties-pharmacists, program sponsors, and consumers-the Federal Trade Commission, in consultation with the Departments of Justice and Health, Education, and Welfare (now Health and Human Services), the public, insurance carriers, the pharmacy representatives, should develop antitrust guidelines implementing a system of consultation between pharmacy representatives and plan administrators; • The committee should be advised by appropriate parties no later than February 1, 1972, on action taken in connection with this report and the recommendations of the committee. The second and third recommendations were never completed. Thus from the start of the 1970s, pharmacists and third-party prescription plan administrators had no guidance on how pharmacy services would be reimbursed. Ten years later, federal and private third-party administrators still have not resolved the problem. From 1971 to 1975 there were few incidents between pharmacists and third-party payers over service reimbursement, although the level of fixed fees in governmental programs remained constant in many states, e.g. there were fewer fee increases and the annual average increase was only 6 cents. In 1975 a new Medicaid regulation, Part 19-1imitations on payment or reimbursement for drugswas implemented. Reimbursement for pharmaceutical services was addressed in these regulations in one paragraph. DHEW advised:

... that the Social and Rehabilitation Services final MAC conforming regulation be amended to require state agencies to conduct periodic surveys of the costs of dispensing drug products. In determining fees, states should review data obtained through these surveys as well as other available information to assure that established fees are equitable. A direct result of this regulation was a sudden increase in the frequency and amount of fees for Medicaid prescriptions. The regulation did not address the method of reimbursement for pharmacists' professional services in the Medicaid Program, but it did have an impact on the level of fixed fees paid pharmacies.

American Pharmacy Vol. NS20, No. 12, December 19801707

Lawsuits On the Rise In the private sector, probably due to inflationary increases in operating and ingredient costs, the frequency of legal cases against use of the fixed fee rose sharply between 1975 and 1980. Nine important cases occurred during this period. By far the most dramatic was the Royal Drug case. In 1975, 18 pharmacies filed suit in San Antonio against a Texas Blue Shield Prescription Program. The suit originated with Martin Rubin, who brought price-fixing charges against Group Life and Health Insurance Company, a Blue Shield organization. The defendants claimed that insurers were not exempt from prosecution under the McCarranFerguson Act for violating Section 1 of the Sherman Antitrust Act. ** The federal district court in San Antonio rejected the antitrust charges, but the ruling was reversed in 1977 by the Fifth Circuit Court of Appeals. The U.S. Supreme Court took the case on appeal from the circuit court decision. The basic legal issue in the case was whether an insurance company's efforts to control the cost of drugs or any other product or service supplied to beneficiaries constituted the business of insurance. In 1979 the Supreme Court, in a 5-4 decision, held that the "business of insurance" consists only of the "spreading and underwriting of policyholders' risk" and therefore covers "only direct relationships between insurer and insured." Thus contracts between insurers and pharmacies are not "the business of insurance" and are therefore not immune from antitrust challenges. The Supreme Court decision settled the issue of whether insurers could be held accountable under federal antitrust laws and cleared the way for lawsuits against private insurers in five different states for using the fixed fee method of reimbursement.

··Under the McCarran-Ferguson Act of 1975, insurance businesses are exempt from federal antitrust laws in any stat~ where insurance companies are regulated by state authonties. In 1979 the Senate Judiciary Antitrust and Monopoly Subcommittee was reported to be drafting a bill repealing McCarran-Ferguson and placing insurance companies under uniform standards subject to the FIe.

35

40

~--------------~----------------.----------------.

o Professional Fee III Markup

o Variable Fee III UC&R

o Combination D

No Program

--=

as tn

"020

!E ::::s

Z

o 1968

1974

1979

Source: National Pharmaceutical Counc il.

In December 1979, Detroit Federal Judge Robert De Mascio granted the Michigan Pharmacist Guild the right to sue Blue Cross/Blue Shield of Michigan for allegedly violating antitrust laws by fixing a maximum fee for prescription dispensing reimbursement under third-party agreement. The judge cited the Texas Royal Drug case in holding that Blue Cross was not exempt from antitrust laws. The most recent development in pharmaceutical service reimbursement was in the U.S. 8th Circuit Court. The Arkansas Pharmaceutical Association challenged the Department of Health and Human Services Medicaid reimbursement formula on the point that the formula is not based on each pharmacist's usual and customary charge. The decision of the judges was: 36

We are firmly convinced that requiring the state agency to pay pharmacists the ingredient costs plus dispensing fee when this amount is lower than the pharmacist's customary charge is reasonably related to the apparent legislative purpose of providing necessary medical services to the poor without undue expense to the taxpayer. They further stated: Regulations neither fix prices nor compel the pharmacist to sell his drugs at a specified price. Rather, regulations are calculated to protect the government from the vagaries of the marketplace by setting a reasonable limit on the amount the government will pay when it provides reimbursement for drugs furnished under the Medicaid program . Changes in Reimbursement The other noteworthy trend during the 1970s was the switch in

methods of reimbursement for pharmacy services in the Medicaid program. In 1968, just after Medicaid was launched and the GAO study on reimbursement methods had been performed, there existed a hodgepodge of reimbursement methods in state drug programs (see chart this page). By 1974 the fixed fee method of reimbursement was dominant. Because of the Royal Drug case and the political activity of pharmacists and pharmacy organizations, the variable fee method of reimbursement had gained acceptance in nine states by 1979. It appeared in early 1980 that some administrators of private and public third-party prescription plans had begun to adopt an approach to reimbursing pharmacists for their services that at least considered operating costs. In the wake of the growing use of the variable fee in Medicaid as well as private third-party prescription plans and a decline in the use of the fixed fee method of reimbursement has come the introduction of capitation and usual and customary charges as alternative methods of reimbursement. Capitation, simply stated, is a system of payment that offers a pharmacy a fixed monthly dollar amount for each person serviced. Under the system the incentive is to reduce drug dispensing because fewer prescriptions mean more profits. The capitation concept is currently under evaluation in Iowa with funding by the National Center for Health Services Research (see October American Pharmacy, p. 13). A preliminary project has been carried out successfully over a two-year period in 12 experimental and control pharmacies in two counties. Tentative results indicate that capitation encourages pharma'cists to increase drug product selection and implement other behavioral changes that reduce Medicaid drug expenditures. The program has been well received by pharmacists, and the next phase of this project is to develop solutions to the administrative problems discovered in Phase 1. This phase will put the capitation experiment into effect in one third of the counties in the state and will evaluate its impact on drug costs and

American Pharmacy Vol. NS20, No. 12, December 19801708

dispensing behavior. The Health Care Financing Administration is excited about the outcome and is anxious to evaluate its results. Usual and customary reimbursement for pharmaceutical services has been used almost exclusively in indemnity benefit programs and never on a large scale in third-party prescription programs. Before passage of Medicaid regulations, usual and customary reimbursement was u sed in some state-administered drug programs. It has never been evaluated as a reimbursement method under controlled experimental conditions. A number of sources have recently suggested, however, that usual and customary reimbursement be investigated for use in third-party programs. In 1977, HCFA staff members William Hickman and Joan Weinberg characterized federal fixed fee reimbursement policy as "the least equitable of three alternatives---variable professional fee, fixed professional fee, and usual and customary reimbursement." They recommended that pharmacists be reimbursed u sing "usual and customary charges with percentiles." Under this method, Medicaid would pay the same price as the general public for a prescription, except that Medicaid w ould not pay above a certain cutoff point established by comparing a pharmacy' s price for a given drug with all other pharmacies' prices for the same drug. The cutoff point w ould probably be at the 75th or 80th percentile. They also suggested that a demonstration project be conducted within a state to compare the price behavior under a usual and customary system in one area with the behavior under a cost-related system in another. Neither of these recommendations has been implemented. . In 1978, another strong suggestion for using usual and customary reimbursement in Medicaid programs was made by Raymond Gosselin and David Carter. To control expenditures, they said, administrators could calculate the upper limits of acceptable usual and customary prices based on reasonable probability levels. Prices above the calculated upper limit could be rejected or adjusted to the limit. The increased interest in usual and cus-

tomary reimbursement is probably the direct result of the failure of the fixed fee method of reimbursement to adjust to inflationary price increases. The movement toward competitively determined prices is growing in other areas of health care. Evaluation of Methods Discussions about pharmacy services reimbursement evoke as much heated debate now as they did five years ago. Realistically, the proper reimbursement method for pharmaceutical services should satisfy standards that show benefits for all concerned parties. In 1968 the DHEW Task Force on Prescription Drugs, realizing the necessity of standards of evaluation, proposed seven tenets for an ideal reimbursement system: • It should reward manufacturers and dispensers of drugs according to their economic costs based on an efficient use of resources; • It should neither encourage infla tionary increases nor shift part of the cost of drugs from beneficiaries to nonbeneficiaries; • It should minimize the cost of drug therapy by providing incentives to drug producers and distributors to improve the efficiency ·of their operations; • It should be simple enough to be understood by all program participants; • It should maintain adequate drug supplies; • It should promote vendor services of high quality; • It should involve reasonable administrative costs. A few years later, several additional tenets were suggested by Donald Rucker: • It should be responsive to cost fluctuations; • It should not favor one type of outlet over another; • It should be discriminatory, reflecting true differences between costs and services rendered among groups of outlets. Although the tenets of the ideal reimbursement system were identified in the late 1960s and collated by David Knapp in 1971, no one has used them to evaluate existing and proposed reimbursement methods. U sing a Consumers Union type of

American Pharmacy Vol. NS20, No. 12, December 19801709

analysis, the illustration on page 38 shows how various reimbursement methods would measure up if they were analyzed using the ideal tenets. As one can see, the usual and customary method of reimbursement would satisfy almost all of the basic tenets except promoting reasonable administrative and monitoring costs. The next method closest to the ideal is the variable fee method. It suffers from not being responsive to cost changes and has not been fully evaluated on several other factors because of low use. It is excellent for maintaining adequate drug supplies and discriminating between costs and services. The worst method of reimbursement in terms of the ideal tenets is the fixed fee. Its only good points are low administrative costs and ease of understanding, attributes highly praised by program administrators. It exhibits a fair-to-poor showing on the remaining tenets. Because of its limited use, capitation needs additional evaluation before a final decision on its use can be made. Many of the tenets satisfied by use of a capitation fee are highly desired by third-party administrators. For example, it minimizes total costs, has low administrative costs, and is simple to understand. Over the long run, after pharmacists have realized windfall profits by implementing cost-saving strategies, such as drug product selection and use of OTC drugs, this reimbursement method may exhibit the same problems as the fixed fee method. Administrators may be tempted not to raise the capitation rate, and legislators will ask pharmacists to justify rate increases by conducting cost studies of their operations. In fact, because of the windfall profits pharmacists will receive in the early years of the capitation fee approach, there may be a tendency by legislators to reduce the rate. In Phase 2 of the Iowa experiment, the rate has already been lowered from the 90th to the 80th percentile, thus negatively affecting participating pharmacies' cash flow. Use of a capitation rate may not resolve the reimbursement problem in the long run, and it may postpone an acceptable solution for a few more years. 37

What is lacking at present is a strategy or long-range plan for pharmacy reimbursement under thirdparty plans. What appears abundantly clear is that the present methods of reimbursement for pharmaceutical services have evolved because of the power possessed by private or public third-party administrators. To these administrators, the primary objectives in administering a prepaid prescription program are to keep total costs as low as possible and to maximize the ease of program operations. As long as these two objectives are achieved-and there are few participant complaints and provider refusals to participate -the plan is deemed a success. Pharmacists, on the other hand, operate from a point of weakness. Individually, they do not possess the strength to bargain with program carriers. Collectively, they are

1 Fixed Professional Fee

2 Variable Professional Fee 3 Capitation 4 Usual·and·Customary Excellent .

CI),!

en!! "EG)

c:2

G)2

0..8

as:2 rJ> a:Q.

Reimbursement Methods

=en eU

Cl)en

._" .e3 G)~

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~.5

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•• •• • • • •• • •• • • • • • • ••••• ••• D D D D

" ~ ~

~

6

~

6

~

Very Good

~

GOodD

Fair ~

Key to Advantages

Key to Disadvantages

A Promotes lower drug use. e Improves budgeting for third-party carrier. C Stimulates generiC dispensing. o Lower provider abuse. E Most desired by pharmacists. F Theoretica"y should promote best use of resources. G Increases cash flow. H Lower administrative costs within pharmacies. In consultation with the phYSician , drug costs could be lowered by switching to other drug entities in the same therapeutic categories or OTC drugs.

A No acceptable way to set rate or fees. e Fails to distinguish between quality and quantity of services offered. C Penalizes efficient operators; rewards inefficient operators. o Requires extensive monitoring procedures. E Could discourage use of essential drugs. F Limits freedom of pharmacy choice. G Violation of federal antitrust laws.

38

spearhead this effort. Public and private program administrators must sit down together with organized pharmacy and openly discuss the advantages and disadvantages of potential reimbursement methods. Frank, open discussions that revolve around sound criteria and data analysis might produce a solution to the 20-year-old reimbursement problem. The beginning Qf the 1980s is an ideal time for pharmacists to unite to solve the reimbursement problem. In this era of limited resources and dollars, it's time for pharmacy to develop good managerial decision-making techniques to achieve equitable reimbursement. It's time to finish what the House subcommittee started in 1971: to devise a system that properly rewards pharmacists who deliver quality services at competitively determined prices. 0

prohibited from bargaining under federal antitrust laws. There are a number of areas which require study, as suggested by the scheme (the evaluation of usual and customary reimbursement with percentiles set using IMS America data, the impact of reimbursement methods on recipient health status, and the shifting of costs to nonbeneficiaries), to provide a basis for rational decisionmaking on the reimbursement problem. Pharmacists, their association representatives, and public and private third-party administrators could, as the Hungate Committee recommended, evaluate and rank order the criteria and conduct needed studies for the purpose of developing an objective decision matrix . . Once there is a consensus, meetings could be conducted to choose reimbursement methods. APhA has already established a Third-Party Task Force that could

Plan and Study

Insufficient data

poor .

D 6.

Advantages

Dlsadvantages

Comments

1 2

D

B,G,C,A

B

D

C,D

C

3

A,B,C,D,G,

A,E,F,G,B

D

D

A

4

H,I

E,F

Key to Comments A Assumes true marketplace price. e Most widely used method. C Used in nine state Medicaid programs in 1979. o Under study in Iowa.

American Pharmacy Vol. NS20, No. 12, December 19801710