Evidence from recent federal enforcement actions suggest pharmacy benefit managers are exposing public-payer managed care plans to problems that could send shivers up executive's spines.
With growing enrollment and new programs, these days might be considered the "Golden Age of government programs" for health plans. But for pharmaceutical benefits, the business risks for health plans have never been greater, argues John Gorman, a healthcare consultant and former managed care assistant director at the Department of Health and Human Services.
"The recent track record" of PBMs "really highlights the exposure that insurers have to PBMs' poor performance," Gorman said in a recent presentation. It's high time insurers in Medicare Advantage and Part D evolve their practices and relationships with PBM contractors, Gorman argues.
Much like insurers, the bulk of income for PBM companies has traditionally come from commercial insurance -- where health of the membership is overall fairly stable. But now, in the growing government programs, there is "much greater severity of the patients needs," Gorman said. Medicare beneficiaries use "multiple times more drugs than a commercial population does, you have much greater rates of polypharmacy issues, [and] in Medicaid you've got rampant mental health and substance abuse issues."
More recently, driven in part by new exchange plan membership, there are spikes in pharmacy utilization for expensive chronic conditions like HIV/AIDS, Gorman said.
It's in Medicare plans, though, where it's "really getting alarming," as suggested by recent findings by the Centers for Medicare & Medicaid Services.
PBMs and Medicare
In audits last year, CMS found a number of Medicare plan sponsors failing to properly administer CMS-approved formularies with unapproved quantity limits or utilization management techniques.
Those types of practices, said CMS deputy director of compliance enforcement Jonathan Blanar in a presentation, could ultimately attract CMS enforcement actions, particularly if they lead to "inappropriate delay or denial of access to health services or medications," "incorrect premiums charged or unnecessary costs incurred," or "inaccurate or untimely information provided about health and drug benefits."
Most enforcement actions between January 2014 and May 2014 stemmed from coverage determinations, grievances and appeals, but others involved a range of issues, including transition benefits and enrollment. And all of them may spell trouble in the years ahead as competition increases and quality ratings are emphasized by regulators.
(Source: CMS Division of Compliance Enforcement)
"PBMs have a big hand" in the category of coverage determinations, grievances and appeals, "but they're not entirely culpable," said Gorman. "What's maddening about that is it also shows that health plans still have not gotten their arms around beneficiary coverage protections and appeals."
There's another area where PBMs have greater responsibility that should draw insurers attention, Gorman argues. "What's more maddening is the second category that CMS laid out in frequency of violations by area: 60 plans were nailed for formulary administration and transition benefits, and that is all about PBMs," Gorman said.
The most frequent violations were unapproved quantity limits, unapproved utilization management, failure to adhere to CMS transition policy for chronic disease patients switching drugs, improper use of prior authorizations or exceptions, and failure to offer transition supplies of non-formulary medicines.
"These things are absolutely core to what PBMs do," Gorman said. "That these are listed as the most frequent violations among Medicare Advantage and Part D plans ought to send a shiver up the spine of every chief compliance officer, chief medical officer, chief quality improvement officer and every chairman of the board and CEO in this industry."
Star ratings and sanctions
The increasingly important star ratings, meanwhile, may very well be correlated with these areas, especially when it comes to customer service, access to care, quality improvement and medication adherence. "Where you see plans getting ranked two stars or less out of five by domain are exactly the domains where pharmacy benefit management companies have direct ownership," Gorman said.
Many of the Medicare plans currently under sanction are there because of the drug benefits. "This is a phenomenon that is really relatively recent in the making and it tracks and correlates very closely to consolidation that we see in the PBM industry itself," Gorman argued.
That's led to a "brain drain of Part D talent and government program know-how out of those companies," Gorman said, and it now leaves Medicare Advantage and Part D sponsors "entirely at the mercy of the government programs know-how of their specific account manager."
Gorman thinks this trend is "the leading the cause of quality and member experience issues for Medicare beneficiaries" -- and it could start impacting Medicare plans' income if beneficiaries start switching en masse, or even decide to use traditional Medicare.
Insurers may want to evaluate their PBM services in Medicare Advantage and Part D, to improve their performance before federal regulators start issuing enforcement actions and to get a leg up on best practices for Medicaid and exchange plans.