Operational Impact of Medicare Part D – Are You Ready?

By: Joseph Coppola, Solution Partner – BusinessEdge Solutions

Since its enactment into law on January 1, 2006, Medicare Part D has engendered a great deal of controversy. While the intent of the law is to guarantee anyone eligible for Medicare access to prescription drug coverage — regardless of income, health status or prescription drug usage — all parties involved have been faced with challenges in order to carry out its provisions.

While supporters of the law, life science companies must now deal with its operational implications in order to ensure appropriate and rigorous fulfillment of their contracts with payors, including Pharmacy Benefit Managers (PBMs), Health Maintenance Organizations (HMOs) and other third-party groups.

Even before the enactment of Medicare Part D, the pharmaceutical industry has long been challenged to understand the operational and system issues inherent in the contracts management lifecycle. On average, 75 percent of all prescription drugs in the United States are sold under some type of contract – whether they are PBMs, HMOs, Group Purchasing Organizations (GPOs), state and federal organizations, etc. These contracts are typically based on volume and / or market share. Throughout the lifecycle of the contract, the pharmaceutical company will reimburse the payors and GPOs money (i.e., rebates or off-invoice discounts).

Despite the overwhelming dependence on contracts, the business processes of contract creation, Terms & Conditions compliance management and performance analysis are typically inefficient, labor-intensive, non-standard, slow and plagued with untimely and inaccurate information.

The information or data that a pharmaceutical company receives from their customers is typically prone with errors, making any type of analysis or pricing suspect. Multiple submissions for the same product prescription are often difficult to identify, resulting in overpayments of rebates. A recent contract audit of a small life sciences company, with sales of only $1 billion, identified over $20 million per year in overpayments.

Medicare Part D does not change the game; it merely ups the stakes by increasing the number of prescriptions reimbursed under contracts. With the advent of Medicare Part D, data is still coming from the same entities – but there is much more data, and many more prescriptions. When data started coming in April for the first quarter of 2006, it was plagued with errors. If the data is not accurate, how will a life sciences company accurately calculate and reimburse the correct amount in rebates and administrative fees? How can contract claims data be comprehensively validated, including timely and accurate reference data such as customer IDs, membership, eligibility, affiliations and formulary status? This is the administrative challenge of Medicare Part D – verifying the accuracy of the massive amounts of data coming in support of each contract.

Medicaid programs, administered by the states, add to the complexity. In addition to Medicaid, several states offer supplemental programs for the elderly and the poor not under Medicare Part D. This creates dual eligibility and means that if claims under both Medicaid and Medicare Part D are submitted, the claim can potentially be paid twice. And, since Medicaid data is typically not provided at the prescription level, comprehensive validation of Rx data is virtually impossible.

To further complicate the issue is the much talked-about “doughnut hole.” Medicare Part D stops paying after claims of $2,251, and starts paying again (at 95 percent) at $5,100. This is a data nightmare, because it is unclear just who is keeping track of this data. The risk is that if a claim falls into the so-called doughnut hole, and is not reimbursed under Part D, the data sent to the life sciences company may still be in error.

It is up to the life science companies to seek a solution to this contracts administration challenge. PBMs and administrators of other prescription drug plans are financially disincentivized to “clean up the data” – in doing so, they risk receiving lower rebates and administrative fees. Moreover, it is clear that this challenge must be faced as soon as possible. With the massive amounts of data currently coming in, there is no time to waste before launching an effort to identify trends. One option is to conduct a ‘proof of value’ assessment – i.e., start with one or two historical customer data sets, validate using a ‘data scrubbing’ tool and then calculate the difference between what was originally paid vs. what should have been paid. The outcome can then be extrapolated to other customer data sets. In doing so, it can be clearly demonstrated that a company is overpaying and by what amount — an amount that can potentially translate into tens of millions of dollars per quarter.

Understanding the implications of Medicare Part D is just one step toward addressing the many operational and system issues inherent in the contracts management lifecycle. This is the time for the life sciences industry to upgrade procedural controls that comprehensively validate contract claims against timely and accurate reference data. By doing so, they will realize optimal returns on contract-related investments.

About BusinessEdge Solutions Inc.

BusinessEdge Solutions, Inc. has a practice dedicated to helping companies address these and other ECM / CLM related issues with a very experienced team who has delivered real, bottom-line results for their clients.

Our ECM/CLM practice provides the following consulting services:

• Rapid operations diagnostic; value hypotheses generation and proof-of-value analysis
• Operations assessment, future state blueprinting, transition planning, and business case development
• Contract template and clause rationalization
• Contract inventorying and cataloging
• Business process and organizational re-alignment
• Business and system requirements definition
• ECM/CLM packaged software evaluation, selection and implementation

Utilizing proven methodologies and frameworks, our team can rapidly identify areas of revenue leakage and revenue lift, develop hypotheses on value potential of improved capabilities and generate a blueprint and an approach for realizing tangible benefits.

BusinessEdge Solutions Inc. is an industry-focused business and technology consulting firm offering strategy, process optimization and solution integration to clients in the life sciences, communications, media and content (CMC) and financial services industries. The company drives competitive advantage for its clients by leveraging its vertical-domain thought leadership and asset-leveraged consulting enabled by pre-engineered business and technology solution frameworks to reduce the time, cost and risk of delivering breakthrough results.

BusinessEdge is distinctive among consulting firms in that its multidisciplinary consultants have an average of 15 years of industry-specific experience and expertise. This strong industry knowledge and technology know-how is at the core of the company’s unwavering commitment to create vision for its clients – and is the driver behind its delivery of high-impact business solutions. See www.businessedge.com for a more detailed view of the firm’s expertise and a complete listing of all its capabilities and solutions.