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HHS MAY SPEND $ 12 MIL. TO EASE PHARMACY ADOPTION OF STANDARD ELECTRONIC POINT-OF-SALE EQUIPMENT: CLAIMS PROCESSING IS LINCHPIN TO OUTPATIENT COVERAGE

Executive Summary

The Department of Health and Human Services (HHS) will subsidize the costs of installing computer hardware for pharmacies to participate in the Medicare outpatient drug benefit, according to a provision in the Medicare Catastrophic Coverage Act of 1988. The language of the bill reported out by the House/Senate conference committee stipulates that the Secretary of HHS "shall provide to each participating pharmacy . . . upon request, such electronic equipment and technical assistance (other that the cost of obtaining, maintaining, or expanding telephone service) as the Secretary determines may be necessary for the pharmacy to submit claims using the electronic system" established elsewhere in the legislation. The conference committee bill was passed by the House on June 2 and by the Senate on June 8. In-store electronic equipment is viewed by Capitol Hill architects of the new Medicare outpatient drug coverage as a linchpin of the program. The conference committee report on the legislation describes the installation of electronic point-of-sale equipment as a basic component of the comprehensive claims processing the billing system necessary to administer the program. The legislation requires HHS to have in place an electronic processing system by the start of the program in 1991. The report explains that "the conferees consider the electronic billing system integral to the smooth administration of the prescription drug benefit." The conferees expect that the Secretary will devote the necessary resources to make the electronic system "fully and successfully operational" by Jan. 1, 1991. Reinforcing the call for a tight deadline for implementation, the conference report declares that "the conferees expect that the system will be thoroughly tested prior to" the start-up date at the beginning of 1991. Senate Special Committee of Aging staffer David Schulke, one of the key staffers involved in the development of the drug benefit, commented on the electronic hardware provision at a conference June & in Chicago sponsored by the Bear Stearns investment firm. Schulke noted that "in the very first year of the benefit there will be a point-of-sale electronic claims processing [system]." The Senate staffer observed that "at this point, according to internal HHS memoranda, [HHS is] going to buy all of the electronic equipment needed by pharmacists to perform this function and hook up with the main database." HHS estimates, Schulke reported, that it "will cost them in the neighborhood of $ 12 mil. nationwide. It's not clear what kind of equipment they're thinking about. There's been a lot of attention paid to what kind of equipment will work best for pharmacists and allow them to do the most with their money." The type of equipment selected is important, Schulke explained, "because whether a pharmacist is participating, how the whole drug utilization review program works, depends a lot on the hardware and how accessible it is to the pharmacists." The electronic processing technology is intended by Congress to have an impact on the Medicare drug reimbursement system in two ways. First, it will allow for efficient claims processing, resulting in prompt payment of claims to participating pharmacists, and, second, it should also allow HHS to closely monitor program costs by compiling computer databases on drug prices and drug utilization by Medicare beneficiaries. The conference committee report notes that the electronic system will be developed under contract by third party claims processing entities. According to the report, the HHS is authorized to "contract with other entities for implementation and operation of the electronic point-of-sale claims processing system and for related functions." The Capitol Hill drafters of the program belief that contractors will be chosen from such entities as voluntary associations, corporations, partnerships, and other nongovernmental organizations. Such contracts may be on a regional basis." The report adds that "the conferees expect that the Secretary would initially contract with more than one entity to establish more than one electronic system." At the Chicago analysts meeting, Schulke noted that "the fall-out on another industry is pretty substantial. Somebody is going to get contracts to the electronic claims processing for the Medicare drug benefit [and] is going to really do well." The Senate staffer predicted that "there are only going to be three-to-five carriers in the whole country." Schulke said "the conferees said very clearly in the conference report that they do not want to have one to serve the whole country, certainly not in the first contact cycle, because we want to get a chance to look at everyone's different programs and see how it works." An important benefit to pharmacists from an efficient electronic processing system could come in the form of prompt payment of claims. The legislation "requires contractors processing claims for prescription drugs to provide for a monthly payment cycle. All claims received and approved for each participating pharmacy or individual submitting claims in the period since the previous payment date would be paid at the end of the payment cycle." Congress would impose an interest penalty on HHS for slow payment of pharmacy claims. The conferees, according to the report, "understand that under this system, claims would be paid, on average, 15 days after receipt. If payment is delayed more than five days after the requisite payment date, interest shall accrue until payment is made." To participate in the Medicare drug benefit program, pharmacists must be officially registered under the state pharmacy licensing laws, and must agree "to accept payment [under the catastrophic bill] on an assignment-related basis for all covered outpatient drugs dispensed to an individual entitled to benefits [as defined by the bill]." The importance of a workable electronic claims processing system is driven home by the congressional view of the switchover from beneficiary payment for drugs to program payment after the deductible is met. The conference report states that "payments to pharmacists begin when HHS notifies the pharmacist, through the electronic system, that a beneficiary has met the specified deductible for a given year." Participating pharmacists must agree: (1) not to refuse to dispense covered drugs to beneficiaries, (2) not to charge Medicare beneficiaries more than the charge to the "general public," (3) to keep patient records, including records of expenses, for all covered drugs dispensed, (4) to submit required information to HHS for administrative purposes and for purposes of surveys stipulated in the legislation, and (5) to provide counseling to patients on appropriate drug use and to advise beneficiaries of the availability, where appropriate, of therapeutically equivalent drugs. For participating pharmacists, the administrative fee (i.e. dispensing fee) will be set at $ 4.50; nonparticipating pharmacists collect a $ 2.50 fee. The fee can be adjusted in future years of the program by a formula based on the increased in the price deflator for gross national product established by the Commerce Department. The high-volume pharmacy discount in the final conference bill differs significantly from the original plan for the provision. The idea had originally been proposed to capture savings for government from the economies of scale availability to pharmacies with substantial volume pharmacies to mail-order pharmacies. The final legislation also notes that HHS "may, after consultation with pharmacists, elderly groups, and private insurers, reduce the administrative allowances . . . for any drug dispensed by a mail service pharmacy (as defined by the Secretary) based on differences between such pharmacies and other pharmacies with respect to operating costs and other economies." The final language makes the discount an option for HHS to consider and builds interested parties into the process for instituting the discount. Particularly noteworthy is the mention of "elderly groups" among those to be consulted before a mail service discount is imposed. That reference appears to represent a victory for AARP (the American Association of Retired Persons). AARP controls a large mail order prescription business through the affiliated Retired Persons Pharmacy. By requiring consultation with elderly groups before deciding on a mail service discount, Congress is writing AARP into the decision process on related business of its own. AARP has maintained that the pricing levels to be set by the outpatient benefit will have no adverse effect on its mail service operation because their current prices are below the anticipated new levels. Expense records from participating pharmacies will provide basic information for HHS in determining drug utilization patterns, the conference report indicates. Noting that HHS has the authority to deny payment for "items and services that are not reasonable and necessary," the report points out that HHS is required to establish a program to identify patterns of unnecessary or inappropriate prescribing or dispensing, instances of "substandard care," and potential adverse reactions. "The conferees expect that participating pharmacists will review the medication profile of beneficiaries for potential adverse reaction before filling prescriptions. The conferees further intend that carriers will review claims retrospectively to identify practitioners exhibiting a pattern of inappropriate drug prescribing or dispensing," the report states. One of the studies mandated by the legislation, to be conducted by the General Accounting Office, would be based primarily on pharmacy records. The report notes that the study would include a "comparison of average wholesale drug prices and actual acquisition costs by type of pharmacy; an analysis of the discounts offered by pharmacies to other third-party insurers; and an analysis of overhead costs of retail pharmacies." The report declares that participating pharmacies would be required to provide GAO with "reasonable access to records needed to conduct the study. Failure to provide required data, or submission of inaccurate data, could result in exclusion from the Medicare program and a fine, the report notes. The price comparison studies could turn out to be some of the most important offshoots of the Medicare drug provisions ("The Pink Sheet" June 6, p. 3). Schulke told the Chicago audience that "the interesting thing is going to be the rate of [price] increases. . . . We will be tracking prices like never before, and there's a whole series of studies" in the legislation that are not drawing a lot of attention.
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