Saturday, March 31, 2007

Follow the Money III

According to Jacob Goldstein of The WSJ Health Blog federal investigators are looking into possible conflicts of interest for over 100 National Institute Of Health Scientists with financial ties to larger pharmaceutical companies details are here.

The Health Care Blog

Matthew Holt at The Health Care Blog was gracious in giving this site a plug last week and in complimenting me on my personal best speckled trout (photo at bottom of the page). Actually, I received numerous email comments on the trout proving there are many others out there just like me who would rather be fishing.

If you have not checked out THCB please do so as you will find the blog rich in great content.

Someone is going to Pay For These Promises

The WSJ Health Blog reported yesterday in a post by Theo Francis that US State and Federal promises to retirees for Health Care and other Benefits carry a price tag of $1.5 Trillion according to a report by Credit Suisse which you can find here. The Government Accounting Standards Board recently enacted new rules which happen to mirror changes enacted in the private sector well over 15 years ago by FASB when FAS 106 & 112 obligated GAAP accounting rules to account for retiree health care and benefit obligations.

Those of us with a little gray hair saw this movie play out in the private sector with FAS 106 & 112 so its funny to envision the staff at The WSJ Health Blog being shocked by the magnitude of the obligation retiree health care represents. While there is some humor in seeing the government live by the same rules as the private sector it should be short-lived if you are a taxpayer so don't get carried away.

The upshot is that health-care costs for state and municipal retirees will drain public coffers, sparking either huge tax-hikes or spending cuts.
You can check out the map in the Credit Suisse Report to see how your state taxes will be impacted.

For the record let me say that I followed closely Theo Francis stories of Elliot Spitzer's investigations of the use of contingency commissions and overrides by insurer's in the WSJ several years ago and thought it was first rate so forgive my chuckle over the aha moment when the magnitude of the retiree obligations got revealed. Didn't your dad laugh at you the first time you got a paycheck and complained about all the taxes they took out?

Friday, March 30, 2007

The Answer is Blowing In The Wind

Great summary from Roy Blount, III at Health Plan Law on the implications of Fraud Lawsuits against Pharamaceutical Companies for Health Care Reform here.

In this recent opinion, the district court denied the defendants’ motion to dismiss, thus permitting the plaintiff-relator’s case to go forward on all but one count of California’s False Claims Act. This case serves to illustrate several points.

First, it provides an overview of how state False Claims Act statutes may be employed to challenge costs imposed on Medicaid programs.

Second, the case serves as an object example of why specific attention to pharmaceutical company business practices must be a central component of any serious health care reform proposal.

Third, the case sheds light on the often clandestine profit vectors associated with the sale of pharmaceuticals.

Throw in a presidential election year, the volatility of seniors discovering their Medicare dough nut hole and 2008 could see the brushfire threaten the ammo dump that is the pharma-industrial complex not to mention the powder keg of health care reform in the employer sector as Hillarycare II gets under way. There are Santa Ana winds heading for this little brushfire.

A Picture is Worth a Thousand Words

John Mack at Pharma Marketing Blog has a seriously funny post today about observing drug reps in their natural environment which you can find here.

Next time you are waiting at the doctors office skip the Newsweek and observe what is really happening. After you are done observing think about the impact what you just saw is having on your drug spend as a benefit manager. See, its research. Its business. Kudos to John for pointing out this gem published in Time Magazine where a male doctor talks candidly about the joys of interacting with "Pharma Babes"

It's the click of high heels that gets our attention. The hospital is a place of aching feet in wide, thick rubber-bottomed, stand-all-day-long shoes. And our good women thus shod can't compete; in the weary, unaesthetic world of sick people they work too hard at tasks that are too unglamorous. Those good women were the first to warn us about the young lovelies in high heels. But the pharma babes still get to us, and the good women just roll their eyes. Younger and prettier — or at least better coiffed than anybody taking actual care of the sick — drug reps are a feature of medical life that few outsiders see. Known as "detail" people or (behind closed doors) "pharma babes,"

Surveillance exposes Disability Fraud-Black Hole II

Chalk one up for the good guys. As you read this stop and ponder what happens when behavior like this becomes engrained in a company's culture. Hat tip to BenefitsLink which has a great aggregation service for the story here.

Employee On Short Term Disability Terminated Based On Video Surveillance

from Spencer’s Benefits Reports: An employer did not violate ERISA when it terminated an employee on disability leave based upon surveillance showing the employee engaging in physical activities beyond his supposed disabilities. This was the decision of the Tenth Circuit U.S. Court of Appeals in Denham v. Sunoco, Inc. (No. 06-5040).

John M. Denham worked at Sunoco’s lubricants refinery in Tulsa, Okla. On May 25, 2000, Mr. Denham began a medical leave of absence due to neck, shoulder, and back ailments, and he began receiving short term disability benefits under Sunoco’s disability income plan. As required by company policy, Mr. Denham periodically reported his medical condition to his supervisor and to Sunoco’s company physician at the Tulsa refinery, Dr. Campbell. Mr. Denham also gave consent for his medical records to be shared with Sunoco.

During the time that Mr. Denham was on disability leave, his supervisor heard comments from other Sunoco employees indicating that Mr. Denham might have been engaging in physical activities apparently incompatible with his disabilities. In order to verify these rumors, Sunoco hired a private investigative agency to look into the matter. Rex Merritt, a local investigator experienced in surveillance work, then followed Mr. Denham and videotaped his activities. Mr. Merritt submitted a videotape to Sunoco’s human resources department showing Mr. Denham working on a truck, making a trip to a local auto-supply store, and unloading 50-pound sacks. On Nov. 15, 2000, Mr. Denham was summoned to Sunoco’s HR department, where the videotape was shown to Mr. Denham, Dr. Campbell, and other HR personnel. After Dr. Campbell concluded that Mr. Denham could not have been performing the activities shown on the videotape with his claimed impairments, Sunoco terminated Mr. Denham’s employment.

Now stop and ponder what happens when behavior like this is becomes part of your culture and word spreads. If your firm has 3000 employees and 1% behave this way each and every year what is the economic impact. Lets do the math and assume a $50,000 annual salary (low for a refinery) and 60% STD and LTD plans with a 6 month STD benefit period and followed by LTD.

STD Cost $15,000 per claim X 30 claims = $450,000 in direct costs
LTD cost of $30,000 per claim X 30 claims= $900,000 in direct costs

Total Direct Costs = $1.350,000 annually

A refinery must be efficient to drive profits but for the sake of argument lets low ball the productivity ROI and call it a 2-1 return on labor costs.

Total Indirect Costs = $2,700,000 annually

Total Direct and Indirect Cost of STD Fraud equals $4,050,000 annually.

Notice we have not even included costs for over-time or excess staffing but these are very real for an employer in this predicament. Welcome to the black hole, that giant sucking sound you hear is the black hole of STD (see earlier post by The Group Guy) crushing your benefits and payroll budget. Fraud--a little goes a long way.

The good news is I have solved this very problem at numerous companies large and small.

Thursday, March 29, 2007

Pharmaceutical Trade Secrets Revealed

Despite state laws requiring disclosure of payments made by pharmaceutical companies to physicians in 5 states and the District of Columbia, very little information about who receives and in what amounts is actually revealed according to Reuters reporting on a study in The Journal of The American Medical Association. Two states, Vermont and Minnesota require disclosure to the public.

The analysis included data from January 2002 to December 2004 in Minnesota and from July 2003 to June 2004 in Vermont.

The researchers found that obtaining the payment information was not easy. In Vermont, extensive negotiation with the Office of the Attorney General was needed, while in Minnesota, manual photocopying of individual disclosure forms at the State Board of Pharmacy was required.

Missing disclosure information was common in both states.

In Vermont, 61% of payments were not released to the public because the drug companies classified them as revealing trade secrets and 75% of disclosed payments lacked information to identify the recipient.

A study by a professor at UCLA medical school found physicians only discussed costs, co-pays, re-fills, insurance and money saving alternatives 1/3 of the time with their patients. The patients only ask questions 2% of the time of their doctors on these subjects. The study notes patients need to engage their doctors with questions about the low cost alternatives and many of the patients on multiple medications for chronic conditions cannot afford to comply with their maintenance drugs.

But those trade secrets being discussed between pharmaceutical manufacturers and physicians so proprietary they result in payments never do seem to translate into conversations with patients about the available drug options 2/3 of the time. Think about that for a minute, no make it two minutes. This is precisely how formulary driven PBMS drive serious Profit.

So here in a nutshell is the trade secret revealed for the entire pharma-PBM industry for the very first time; patients do not ask about cost and doctors do not tell. There is nothing insidious this is a product of behavior which can change with the appropriate incentives. The good news is this problem is fixable for employers by plan design (going to $0 co-pay for low cost in class generics) and a cost + administrative fee PBM model that has no price spreads on generics, no rebates and an evidence based formulary. Many insured(see link to BCBS no-pay co-pay) and self-funded plans plans with a good group guy have already figured this stuff out.

This post is not intended to disparage physicians only to reveal how behavior produces the results which will create nuclear fallout by the 2008 election as the entire population of the US capable of sentient thought will know a dough-nut hole is found in Medicare not a bakery. If you think healthcare is expensive now just wait until John Edwards or Hillary Clinton make it free.

Question authority

Why you should always carefully review your hospital bill for errors and overcharges is apparent in this Houston Chronicle story about a whistle-blower who exposed fraudulent Medicare and Medicaid over-billing practices at the Harris County Hospital District.

I loved the whistle blowers honesty;

"I just didn't feel right letting this go by," he said. "It was just wrong." said whistle-blower Bob McCaslin.

And in a validation of the pervasiveness of short term disability as noted yesterday the article said;
McCaslin said he is out on a short medical leave, but plans to return to his Hospital District job.

No one retaliated against him at the district, and consultants who advised the district on improving its billing system sought out his advice, he said.

The black hole of STD strikes again.

Wednesday, March 28, 2007

Where the Rubber Meets The Road

CALPERS lobbied The US Congress this week to preserve access to biogeneric drugs and to allow the FDA the discretion to accelerate the approval process for biogeneric drugs and the details are here.

Two points are interesting to me and enlightening for employers considering whether they need a specialty drug strategy.

...CalPERS' spending for biotech products is distressingly substantial and rising at a rate that is significantly higher than traditional pharmaceuticals. On average, spending for biotech products was at least $55 per day -- compared to traditional drugs at only $2 per day.

...the high cost of bio pharmaceutical products presents an unsustainable challenge to CalPERS and our entire health care system," said Mathur. "CalPERS supports providing the FDA with full discretion to make the ultimate decision about whether and when any prescription drug product -- be it brand or generic -- comes to market."
CalPERS will spend $5B on Healthcare and presciption drugs expenses will top over $1B this year. CalPERS also estimates if they did not have a well oiled generic substitution plan in place prescription costs would be $1.6M in 2007. So while having biogenerics readily available and expediting their approval will save CalPERS significant dollars it is simply one component of a successful strategy that gets a greater ROI than generic infusion but lacks the dollar impact associated with a successful therapeutic infusion strategy that targets all those drugs advertised on TV. You know I bet the real answer to CalPERS might no vote on the CVS-Caremark merger may have more to do with the impact of a retail-mail merger on its holdings in pharma as well as PBMS. Anyone up for some research?

On the other hand what is your company doing to assure aggressive therapeutic generic substitution and a sound biotech strategies are in place to keep drug spend in check? Do tell.

The Black Hole in Your Benefit Plan I

The International Foundation of Employee Benefit Plans recently completed a survey of their membership on Salary Continuation and Short Term Disability (STD) which you can find for free here.

The survey revealed that salary continuation/STD is the black hole of employee benefit plans in terms of quantifying cost and controlling utilization.

Reasons cited for the difficulty of quantifying cost and controlling utilization and effecting changes are;
  1. Union Contracts
  2. Employee perception of value (Did anyone explain the probability of disability and the impact on employees of a sickness or injury which prevents work?).
  3. State Mandates like CA Paid leave (Huh?)
  4. FMLA Integration ( the machine is so well oiled and automated it cannot be improved?)
  5. Management Buy-in (Did anyone explain the facts and costs?)
  6. Entitlement (getting warmer!)
  7. A lenient culture that does not enforce return to work (getting hotter!)
  8. Most of the plans are payroll matters not ERISA plans (red hot, since employer cannot enforce plan terms and win an ADA challenge since payroll plans are not bonafide employee benefit plans

The survey further noted that medical and 401(k) are the most important benefits to their employees but when employers were asked to rank benefit dollars in terms of value to employees $100 as the reference point they indicated the breakdown was;

Medical $22
Paid time off $16
401(k) $16
Pension $13
Disability $12
Dental $11
Life $10

What we have here is failure to communicate. This is severe information asymmetry. Unfortunately it is all too common and there is a perfectly sequential explanation why the STD/Salary Continuation black hole continues to suck in dollars at an alarming rate. Here is the plot in this movie which I have seen dozens of times at Fortune 1000 firms.

  1. EMPLOYERS GET THE BEHAVIOR THEY TOLERATE in Salary continuance Plans.
  2. It is an entitlement to the employees and it is easy to get a doctors note.
  3. The entitlement becomes ingrained in the workforce and eventually the culture.
  4. Consultants focus so much on Health care and Retirement which are perceived to be of utmost importance to employers they never develop proficiency in disability. They do not want to call in subject matter experts from their own firm as that would eat into their own billable hours.
  5. Where the plan is outsourced it remains a pay matter so the TPA is hamstrung and its ASO anyway so who cares if most claims are approved and their durations are unmanaged. You do not manage an entitlement. You only limit its scope.
  6. So the whole ticking time bomb that is the STD/Salary continuance time bomb gets buried deep in the woods where it is never found hopefully.
Sometimes, the scope of the problem becomes evident during an RFP process and things change. Other times the CFO or another senior management does some back of the envelope math and quickly digests the magnitude of the problem, ideally after meeting with me for 30 minutes and hearing the financial ROI associated with change and asks for options.

The thing about a black hole is you can look at it up in the sky almost any night and be completely unaware of its existence, but if you get to close it crushes you. So its better to deal with the black hole before it deals with you. Your move.

Who ya gonna call, Ghostbusters!

The work that I do is serious but it does have its moments of levity. I have spent a lot of time on disability in my career and have seen a few claims that are out there.

I was once involved in a discussion with a client and their disability carrier and we were reviewing claimants who might be good candidates for vocational rehabilitation. The vocational rehabilitation specialist for the carrier spoke up about one claimant who had already begun efforts to establish a Bed & Breakfast which was set in a home which was reportedly haunted where she planned conduct seances and communicate with the spirits using technigues she was studying from another ghostbuster. No one was really sure what that job paid but I can tell you that 40% of all long term disability claims have mental illness as a secondary diagnosis and the behavior which it produces is not always conducive to rehabilitative employment, except maybe in California. Just kidding. Partially.

Tuesday, March 27, 2007

Prilosec OTC, Bunco, Wine and Cheese

Last week I was conducting enrollment meetings for a client. Yes, I do my own meetings because my clients hire me not a service rep. There are a number of hourly employees earning $9-$12 per hour at this company and many are single parents who need guidance. I decided to spend a bit more time sharing specific ways they could reduce their out of pocket expenses under the health plan relating two examples of common presciption drugs with good over the counter (OTC) alternatives, the versions of Prilosec and Claritin. All I did was spend 2 minutes making four points that also lightened the mood and kept the men awake.
  1. I take an OTC generic version of claritin with the same active ingredient as claritin and it costs me $6 for a 90 day supply. It works as well for me as the OTC claritin since its identical chemically. It is far more cost effective than a branded non-drowsy antihistamine.
  2. There is an OTC version of prilosec which is identical to nexium the only difference being that nexium becomes active when it hits the bloodstream which makes a difference for 5% of the population but does not effect the 95% for which OTC prilosec works fine.
  3. Can anyone tell me what the lady featured here does? Yes she is a cheerleader for The Tennessee Titans on Sundays but during the week she is a pharmacuetical rep. Ladies, would your Doctor see her? Most of the responses were"No, she was hired for her looks to sell." Guys, would your doctor see her and if so how much would he retain about her product. Most of the responses were "Yes, he would see her and no he probably would not remember the specifics of her product but would give out her samples so she kept coming back! (click here for details on Traci above).
  4. Does Traci hand out generic or tier III Brand samples? "Brands!, people would buy the generics"

Well you would have thought by the reaction I was explaining how to determine with 100% certainty the winning Lotto numbers. I had numerous questions. Many employees were shocked there are actual OTC chemical equivalents to their antihistamines and acid reflux drugs and kept me for 15 minutes asking questions.

Now I just noticed that Prilosec OTC is hosting a $50,000 World Bunco Championship, which also raises money for breast cancer and the details are here. I thought this comment was incisive because my wife always has reflux when she comes home from the wine and cheese bunco party;
"We found that twice as many frequent heartburn suffers play Bunco regularly compared to the general population," said Karen Klei, Brand Manager of Prilosec OTC. "We know women talk about health issues when they get together, so this has been a great way to educate them about how they can avoid frequent heartburn, and reward them with an opportunity to win $50,000 and be crowned Prilosec OTC Bunco World Champion!"

Prior to Wal-Mart's $4 generic campaign last fall I do not think we would have seen such a focused effort to publicize an OTC drug that has outstanding clinical outcomes. Oh and by the way its not on the formulary because its an OTC drug so if you do not have a group guy designing and communicating highly utilized OTC generics during your enrollment meetings your drug spend probably does not look so good. Which is also why my clients hire me to do the design and the enrollment.

Hat tip to Elana at funny business for pointing me to the cheerleaders

Follow the Money II

The Florida Office of Program Policy Analysis and Government Accountability(OOPPGA) does independent research for the Florida Legislature and pursuant to a legislative request last month published a review of PBM business practices.

Due to the number of retirees in Florida prescription drug costs are a jugular issue and we are heading towards a 60 Minutes moment as the media begins to understand how PBM'S business models function.

Prescription drug costs are the single largest component of employee out of pocket expenses for healthcare. The US Supreme Court has already rejected challenges to Maine's PBM Disclosure Law as noted here and excerpted below.

In a key legal setback for pharmacy benefit managers (PBMs), the US Supreme Court shot down a challenge to Maine's controversial law requiring disclosures of prescription drug deals by PBMs. The Maine statute, which was challenged by PBM lobbyists for the Pharmaceutical Care Management Association (PCMA), requires PBMs to disclose rebates, conflicts of interest, and discounts from drug manufacturers that PBMs are retaining as profit rather than passing on to plan sponsors.
A few weeks ago I was speaking to an old friend who started in group school with me many years ago, a group gal if you will who works for a major Big 4 managed care company. When I shared some insights into the PBM work my firm was doing for several clients she began to comment that she hoped it would expose the corruption that existed in her market where unknown to many large self-funded employers for whom they supposedly worked some brokers, TPA's and consultants were accepting non-reportable rebates, commisions and fees.

It was not too long ago when I worked for insurance carriers that certain brokers and consultants made it abundantly clear to me that a non-reportable, non-5500 schedule A override was the price of admission to be considered a viable market. This type of behavior was wrong then and it is wrong today. Frankly, its hush money. One of the byproducts of PBM disclosure legislation at the state and federal level will be further exposure of some of the business practices PBM's utilize to assure they acquire and retain customers. Just follow the money.

Monday, March 26, 2007

Taking on Pharmacy Benefit Managers

Imagine you are an independent pharmacist, an honest professional with a broad and deep understanding of pharmaceuticals that simply wants to help people and earn a nominal living. You lost all your maintenance drugs when managed care incented members to mail. Wal-Mart, CVS and Walgreens not only have multiple stores near you they have further acquired or built their own Pharmacy Benefit Managers's (PBM'S) so they can have both retail and a mail presence. You know the approximate ingredient cost for every drug in your inventory and over the last 15 years you have seen PBM's emerge. 15 years ago they did not exist and now the big 3 post huge profits. You have a pretty clear idea what type of business model produced these profits since a significant portion came from your margin. Perhaps you even grew up on a farm and where taught that pigs got fed, but hogs got slaughtered so you speak out (fulltext).

Pharmacy Group Testifies Before State Legislators to Increase Patient Protections, Regulate Giant Pharmacy Benefit Managers

ALEXANDRIA, Va. March 1 /PRNewswire-USNewswire/ -- In an effort to establish standards and provide better protection for patients, a representative from the National Community Pharmacists Association (NCPA) testified today before a committee of state legislators in support of model legislation that would force pharmacy benefit managers (PBMs), the largely unregulated corporations that administer the prescription drug benefit portion of health insurance plans for employers and unions, to end their deceptive business practices.

Reginia G. Benjamin, Esq., director of government affairs for NCPA, testified before the National Conference of Insurance Legislators' (NCOIL) Health, Long-Term Care, and Health Retirement Issues Committee in support of the Model Act Regarding Pharmacy Benefit Managers. The act would, among other things, require PBMs to pay pharmacy claims within 15 days, provide transparency regarding financial and drug utilization information, disclose incentives received for making drug substitutions, and pass on to the plan sponsors any rebates, payments, or benefits received from drug manufacturers. Currently, PBMs receive billions of dollars in rebates from drug manufacturers each year in return for dispensing higher-cost brand-name drugs but keep the majority of those rebates instead of passing them along to their clients.

"These drug 'middlemen' restrict consumers' choice and frequently and purposely switch patients to drugs that earn them higher rebates, even when cheaper and therapeutically similar or identical generic drugs are available," said NCPA President John Tilley, RPh, a pharmacy owner from Downey, Calif. "PBMs are robbing America's already strained health care system as a result of a lack of regulatory oversight, and that needs to change."
In addition to switching patients to medications that earn higher rebates, PBMs also limit patient treatment options by offering shrinking and shifting formularies, the lists of drugs that are covered for specific groups in a health insurance plan. PBMs often require excessively burdensome pre- authorization requirements in order to obtain refills or formulary-restricted medications, resulting in red tape and sometimes discouraging patients from trying to obtain their medications.

In most states, the business activities of PBMs are unregulated and unmonitored, in spite of numerous investigations into deceptive and anticompetitive business practices. PBMs regularly have faced litigation related to the federal False Claims Act, antitrust and unfair competition, deceptive practices, and their roles as fiduciaries. Some of those who have sued the PBMs include state attorneys general, unions and health plans, and the United States Department of Justice.

In her testimony before the committee, Benjamin cited a number of recent settlements and judgments against PBMs, including more than $378 million, not including interest, paid by two of the largest PBMs between 2004 and 2006 in cases involving deceptive business practices.

Remember in All the Presidents Men when Woodward and Bernstein are told by Deepthroat to "Follow the Money"? That advice seems quite appropriate to me as it relates to PBM behavior.

I would also pay attention to what you are hearing from the NCPA and Ms Benjamin because IMHO it is entirely accurate and on point. There are 8 states with legislation regulating PBMS and more with such laws under consideration.

Employers, stop and ask who developed your formulary?

If your PBM has been hired to control your pharmacy spend and works for you surely they would have arrived at a bullet proof process for putting the low cost in therapuetic class generics in the hands of your members right?

What percentage of the time does your PBM fill the low cost in therapuetic class generic drug?

Sunday, March 25, 2007

Drug reps

So how does big pharmacy convince doctors of their drugs efficacy?
There must be a mountain of data from the clinical trials right?

Fascinating story from eDrugsearch blog on where pharmacy companies recruit drug reps.

Do not miss the post on the all pharma cheerleading squad.

Check here for one Medrants reaction and bookmark it as its a great blog.

The War on Drug Costs

The WSJ has done a nice job of exposing the underlying reasons for high presciption drug prices as a product of questionable PBM business practices and Why Generic Doesn't Always Mean Cheap continues that trend Health plans have been moving members to generic for years but alas all generics are not created equal and the pricing varies widely especially when you compare retail pharmacy costs for generics which recently came of patent with prices being charged by Costco & Sams. Take Zocor for example;

Case in point: Zocor, one of the most commonly prescribed pills in the U.S., which lost patent protection last June. Multitudes of patients have switched to generic versions of the cholesterol-lowering drug, lured by lower insurance co-payments or the promise of a significant price drop for those who pay out-of-pocket.

To be sure, even for the uninsured, generics still typically cost less than their branded counterparts. And at big clubs such as Costco Wholesale and Sam's Club, out-of-pocket prices for generics do generally plummet. Simvastatin costs $6.97 for 30 pills of the 20-milligram dose at a Sam's Club for which the company provided price information.

At Costco Wholesale, whose Web site yesterday listed the common dose of generic Zocor at $11.96, the company says that even at such prices, Costco is making a profit. Charles Burnett, senior vice president of pharmacy at Costco, says the company can acquire the 30-tablet, 20-milligram dose of simvastatin for $2.71. He says the price on today will fall to $10.66. Patients are allowed to use the pharmacies of clubs such as Costco and Sam's Club, even if they aren't members.

Chain drugstores argue that their business model is different from a company like Costco or Sam's Club. CVS, Rite Aid and Walgreen Co. all say that about two-thirds of their revenues come from prescription drugs.

"We don't sell snow tires," says Mike DeAngelis, a spokesman for CVS/pharmacy. "The core of our business is the pharmacy."

Mr. DeAngelis wouldn't say how much CVS pays for generics but confirmed profit margins on generics are generally bigger than for branded drugs. On all drugs, Mr. DeAngelis says, CVS's prescription-drug profit margins are 2% to 3%. A spokeswoman for Walgreen gave a similar figure, and a spokeswoman for Rite Aid said the company's prescription-drug margins were very thin.

It strikes me that the WSJ would have recognized retail pharmacies are simply doing to consumers what PBMS have been doing to them; marking up a generic by an obscene factor and then citing the paper thin margins on drugs. The difference of course is the employer payors have no idea what the PBM actually reimburses retail pharmacy. And people wonder why CVS bought Caremark?

As I do enrollment meetings for my clients, employees are rapt with attention when you share specific ways to reduce their out of pocket expenses for maintenance drugs.

More employers need to start comparing what shows up on their bi-weekly PBM bill with the costs quoted on Costco and Sam's website for generic maintenance meds. There is absolutely nothing proprietary about generic prescription pricing. Prepare for outrage--the margins are even bigger than snow tires.

CVS raised their bid 3 times for Caremark and Express Scripts upped the ante once. Does anyone truly believe CVS would behave this way to acquire a business with 2-3% margins.

By the way Walgreens owns its own PBM and reported earnings up 25% last quarter. The company cited "brisk sales and a wave of new generic drugs that widened margins"

Friday, March 23, 2007

Its not necessary to change. Survival is not mandatory

Edward Deming famous quote comes to mind as I read this mornings Industry Radar about employers pushing health insurers to either run or integrate with the on-site health centers they are either running or planning. hello Health Insurers--the choice is integrate or die. At what point will many of the large managed care carriers realize their large self-funded clients will be walking for vendors capable of fully integrating their services with the strategic direction their efforts to manage health & productivity are taking? Read on

Employers Push Health Plans to Integrate On-Site Health Centers With Care Management

Reprinted from the March 19, 2007, issue of MANAGED CARE WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs, and POS plans.

Although worksite health centers are an old idea, integrating with them may become the newest service to be offered by health insurers. Large self-funded employers are pushing the managed care organizations (MCOs) that administer their health plans to integrate these centers into their medical, disease and wellness management programs — or even to manage the centers themselves. And at least one operator of workplace health centers says it is partnering with health insurers to offer fully integrated health benefit programs to employers.

Some employers provided on-site health centers a few decades ago, but in the more recent past these facilities primarily were used for occupational health care or discrete services like flu shots. Today, however, companies are returning to the concept of making medical care accessible at the job site, in an effort to close gaps in care and lower health expenses over the long term. In fact, 23% of large companies have opened on-site health centers at some locations, according to a recent survey of 573 large employers released last month by Watson Wyatt Worldwide and the National Business Group on Health.

Full text at

So 23% of large employers have now opened and on-site health center and look at the response from CIGNA & Aetna.

Health insurers interviewed for this article say they are reviewing ways to integrate workplace health centers into overall benefit plans. CIGNA Corp. spokesperson Amy Turkington says that company is "actively evaluating and discussing with employers the topics of how these facilities can be direct employees to available programs, such as disease management or health coaching services, to help them reduce health risks or better manage a chronic condition."

Similarly, "Aetna is currently evaluating with our customers the opportunity to integrate our benefits design and medical management activities with the on-site clinics and programs we are seeing proliferate among larger employers," says Brad Fluegel, the insurer's vice president of enterprise strategy. "We are engaged in identifying the best opportunities to realize these types of outcomes in partnership with our customers.

Now that's really nimble huh? It gets better. Lets consider some of the speculation about why major insurer's are not integrating.

For now, however, employers typically set up an on-site health center, and then ask their insurer to work on integrating that provider with other health management activities, according to John Asencio, senior vice president and health practice leader at Sibson Consulting, the strategic human resources consulting division of The Segal Co. Although some employers ask insurers to directly manage work site health centers, Asencio says, in his experience the insurers have declined the offer. He speculates that insurers "are negotiating with providers to bring volume," and on-site centers divert that volume to other channels.

I do not know Mr Asencio but I would suggest that the reason insurers are declining to integrate is probably not rooted in any great concern that the on site clinics will divert volume from providers in their networks. These managed care organizations are after all revered by physicians everywhere and known for acting exclusively in their best interest right? Is that not what evidence based medicine is really all about? Just call me jaded but I spent enough time in the belly of the beast to think an alternative reason for the lack of integration has everything to do with the not invented here syndrome. Remember health insurers--survival is not mandatory. Its only 23% of large self-funded employers who have invested in strategic on site clinics.

Wednesday, March 21, 2007

Lessons from BP about Safety Culture

The US Chemical Safety Board (CSB) has released its findings on the BP Texas City Refinery explosion which killed 15 workers in 2005. Details are covered in The Houston Chronicle at

Some of the CSB findings are ominous not only for BP but for the entire US Oil & Gas industry as well as other industries with inherent occupational hazards.

"The CSB conducted an examination of corporate safety culture, and we found BP's safety culture to be broken," said CSB lead investigator Don Holmstrom.

"We want OSHA to step up its inspection and enforcement at BP and all U.S. refineries and chemical plants, and to require those corporations to evaluate the safety impact of mergers, reorganizations, downsizing and budget cuts," CSB chairman Carolyn Merritt said.

Investigators also recommended that the overall industry make changes.

The American Petroleum Institute should work with the United Steelworkers to create specific "performance indicators" to measure process safety at refineries, as well as develop fatigue prevention guidelines.

The API issued a statement saying, "The U.S. refining and petrochemical industry is carefully reviewing the CSB report and is committed to learning where and how safety improvements can be made to avoid the terrible tragedy like the one that occurred at the Texas City refinery."

Merritt said she hopes the agency's $2.5 million investigation will reverberate throughout the refining industry, starting in corporate board rooms.

"It is my sincere hope and belief that our report and the recent Baker report will establish a new standard of care for corporate boards of directors and CEO's throughout the world," Merritt said. "Process safety programs to protect the lives of workers and the public deserve the same level of attention, investment and scrutiny as companies now dedicate to maintaining their financial controls."

Najmedin Meshkati, professor of civil and environmental engineering at the University of Southern California, said the report could have an even bigger impact than that.

"This report has a lot of implications beyond chemical processing," said Meshkati, human factors consultant to CSB investigators. Among the industries that could benefit are transportation and nuclear energy, he added.

It is unfortunate a tragic explosion which killed 15 and injured 180 people was required to make the point at BP that a broken safety culture has consequences and hopefully senior managers at other companies will examine their own safety culture. The findings of the CSB will undoubtedly be good news for the trial lawyers who are filling the airwaves in Houston trolling for clients for the pending class action. The CSB report that links cost cutting in the safety program after internal audits revealed serious shortcomings create a reality which looks penny wise and pound foolish indeed. Many refineries including BP carry high limit occupational accidental death and dismemberment policies on their workforce which are employer paid. Texas is unique also in that employers can opt out of the workers compensation system leaving an employer (probably not BP but possible several of the contractors) open to unlimited damages in the event they were negligent.

Stop and think about how many of the 180 people injured are now on long term disability. If you think the AD&D renewal was ugly imagine the LTD renewal. My point is not to make light of a sad situation but to point out that a broken safety culture often manifests itself in high disability costs as unsafe working conditions lead to injuries. This is particularly true at small and mid-sized businesses who lack safety programs to begin with and whose occupational hazards are well known.

"Where there is no vision, the people perish"-Proverbs 29:18.

As a young group rep at UNUM I sold hundreds of group life and disability policies to small and mid-sized employers. Normally, smaller employers became interested in Disability and life coverage after a catastrophic accident, sickness or disability effected one of their employees or family members. People get religion quickly when they see someone they care about struggling financially due to a death or disability. As my career progressed and my market changed to the Fortune 1000 what quickly became apparent was that many larger employers paid little attention to their safety culture or their AD&D and LTD plans until a catastrophic event or an ugly LTD renewal focused attention on the root cause which for many industrial employers frequently was a sick safety culture.

Many larger employers may not be as well covered as they think if their Group Accident and Life Policies have not been scrutinized by a professional with expertise at isolating exposures and re-underwriting their policies to eliminate risk.

On 9-11 I happened to be in the home office for one of the largest writers of accident insurance coverage in the world where I managed at the time. As the news showed the planes crashing my company insured the airlines involved. One of my friends and co-workers, Paul, saw a plane fly into the the world trade center where one of his accounts had 4000 employees and he also had numerous friends, neighbors and customers. The companies with sound safety procedures had many employees get out in part due to the planning, vision and in some cases the heroism of safety professionals. The world trade center was not an industrial location so certainly white collar firms are in need of a safety vision and culture as well particularly where employees are concentrated. 9-11 changed the catastrophic risk markets forever.

This week in Iraq a chlorine explosion raised concerns about domestic exposure in the US.

WASHINGTON, March 22 (Reuters) - Chlorine bombs in Iraq have raised concern that lax security at U.S. chemical plants could make the country, and particularly New York City, vulnerable to similar attacks. Policymakers and law enforcement officials said poor security at the plants could lead to the theft of ingredients needed to build a bomb like the ones detonated in Iraq. "It is perplexing that a nation that has expended so much blood and treasure searching for weapons of mass destruction in Iraq, would allow what could become their equivalent to sit largely overlooked on U.S. soil," Stephen Flynn, former U.S. Coast Guard officer and now analyst at the Council on Foreign Relations, told Congress this week. Flynn said he expects Islamic militants to try to strike the United States again within five years using lessons learned in Iraq. Chemical plants, he said, were likely a top target. Weak security at chemical plants in New Jersey, particularly along a stretch about 10 miles (15 km) from New York City, was cited as a top concern by a senior official in the New York Police Department's counter-terrorism bureau. That official, speaking anonymously, said detectives were analyzing the chlorine bomb attacks in Iraq. full text

The Fox TV show 24 recently depicted dirty nuclear devices being detonated in LA. It was unerrving but believable Does art imitate life or does life imitate art?

So how is your safety culture?

Got AD & D?

More importantly do you have Chemical, Biological and Nuclear coverage on your group AD&D, Business Travel Accident and Voluntary AD&D Plans?

Is your group life insurer big enough to sustain a catastrophic loss and remain solvent?

Did you know 0ne group life insurer with a 5% market share covered everyone who died on 9-11 in the north tower?

What is your specific and aggregate stop loss limits within your AD&D, Business Travel Accident and Voluntary AD&D programs?

A Good Group Guy is Hard to Find

I started in the insurance business as a group sales representative trainee for Union Mutual Insurance Company. Fresh out of Texas A & M one of the attractions the job held was an extensive paid training program. I spent 9 months in training, including 10 weeks in the classroom learning group insurance before I was allowed to make a sales call.

Trainees were required to know how to assess risk and underwrite group insurance before interacting with the public. We were drilled in the classroom and by more experienced senior sales representatives on the contractual terms associated with Group Health, Dental, Life & Disability contracts. We were expected to be technical product experts for all the group insurance products sold by Union Mutual. Since Long Term Disability (LTD) was our lead product, and law firms were our primary target market I cut my teeth as a trainee explaining the contractual nuances of the LTD contract to attorneys as a 22 year old rookie rep.

Expertise was critical since most of our customers were either property casualty brokers or life insurance agents who relied on "The Group Guy" for counsel. Companies like The Travelers, AETNA, Connecticut General and Union Mutual had legendary group schools just like the one I attended. In every individual or P&C agency there was a group guy who handled the employee benefits.Most of them were graduates of the old group schools who moved on to the dark side and are brokers and consultants operating at the retail level and servicing their employer clients. That's what I did in 2004. Today I answer only to my God, my wife and my clients, in that order by the way.

Over the last 20 years training departments have been largely eliminated by most insurance companies. Some insurers rely almost exclusively on life experienced hires for their group sales force. Many Insurance Companies with training programs are simply providing their sales force with rudimentary scripts and point of sale materials. Good luck getting an answer to a question that's not covered in the FAQ'S!

What is even scarier is many of the group representatives who have moved into retail over the last 5-10 years are now advising clients. They dress nice, are usually polished, handsome or attractive. They can prevent a spreadsheet and focus an employer on the low cost alternatives available. Most of them do not make recommendations. Proverbs provides counsel "By their fruits you will know them". Ask a few questions that are not part of their presentation or script If you ask for a recommendation and are steered to the low cost provider ask a few more. How did the carriers arrive at their premiums? Why do the premiums vary so much? What premium level is sustainable? Which funding alternative is right for my company for each product--insured or self insured? What are the salient differences in contractual terms? Is the premium fair? What should the renewal premium be? Is the plan design appropriate and aligned with the employers objectives? What type of service should be expected? How does the service compare? Should multiple products be placed with one carrier or unbundled for best in class contractual terms and cost? Who will represent the employer when a problem occurs? Will I be dealing with you or your service rep or will I be supported by an call center? Who will enroll employees and answer their questions? A group guy can answer these questions quickly and concisely. They do not need to look up the answers if they prepared. Anyone who cannot answer your questions is an impostor. I encourage every employer to get granular when evaluating a broker or consultant. Find out if you are dealing with a group guy or an impostor. Here is a hint though; The person who shows up with a spreadsheet and a legal pad and answers all your questions without referring to either--that's a group guy.

At a funeral recently of another legendary group guy (Travelers Group School Graduate by the way), who died way to soon, I listened to eulogy's from a number of clients who spoke of the immense respect they held for a man who had counseled them for years. There were quite a few old school group guys in the audience and many had gone to group school for months. There were also a number of younger group reps who called on the group guy. One of the younger group reps commented afterward it was amazing to such lifelong friendships all came out one group school. I realized this individuals group school might have lasted a week or two. He had no frame of reference for the old group schools which often involved months of intensive classroom training. I realized Group Guys are becoming rarer. There are very few true group guys blogging.

I am a Group Guy. I know a number of Group Gal's including my mentor by the way so consider the term unisex. My business is founded on providing counsel to my employee benefit clients rooted in integrity, experience and independence. In this blog I intend to share my candid thoughts on matters of interest to me within the Life, Health and Employee Benefits space that deserve commentary and incisive analysis.

I am weary of the spin being churned out and regurgitated from a script by some insurance companies, brokers & consultants and intend to expose frauds by goring a few oxen that are desperately in need of a bloodletting.

My style is blunt. Heck, I was an offensive lineman as a young man and I still enjoy a good pancake block. Besides, there are a number of bright young group reps out there who do not have the benefit of counsel from gray haired group guys like I did as a rookie who can still turn into group professionals with proper guidance. Who else is going to provide them with perspective and entertain them with war stories from the trenches from the days we calculated rates with a pencil and a legal pad? Who will provide counsel for the business owner forced to choose between an annual profit or dropping the health insurance that has become unaffordable? I will. I am The Group Guy.

Let the games begin.