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PCS POSITIONING RECAP II ON-LINE DRUG CLAIMS PROCESSING SYSTEM FOR MEDICARE DRUG PROGRAM CONTRACT; SYSTEM CAN HANDLE 500 MIL. TRANSACTIONS PER YEAR

Executive Summary

PCS is retooling its electronic prescription drug claims processing system to handle the huge volume of claims that will result from the Medicare outpatient drug reimbursement plan. The revised system, called Recap II, will be the centerpiece of the McKesson subsidiary's contract proposal to the Health Care Financing Administration for a piece of the on-line claims processing business coming from the Medicare drug program, McKesson Chairman Thomas Field, Jr. told New York City securities analysts Nov. 10. Recap II gives PCS the "potential...to participate in the Medicare drug program, which will be phased in starting in 1990," Field said. HCFA has estimated that "the 34 mil. elderly who participate in Medicare could generate about 700 mil. claims annually by 1992, when the program takes full effect," Field pointed out. PCS plans to launch Recap II by the spring of 1988, Field declared. The updated Recap system "will enable PCS to incorporate prescription coverage as an integral part of major medical programs." Field said Recap II will be able "to incorporate annual deductibles, annual maximums, formularies - including mandated generic substitution - and exclude specific drugs from coverage. It can also provide a cardholder's drug utilization history and drug interaction information." The McKesson president and CEO noted that "HCFA has said that it plans to contract with three to five claims processors to administer the program" ("The Pink Sheet" Aug. 1, p. 7). Computer industry experts indicate "on-line prescription claims processing is significantly more complicated than credit card eligibility checks," Field said. Consequently, "given the huge lead that PCS has with Recap II, we are highly optimistic about the chances for PCS to participate in the Medicare program." HHS has said that it expects to prepare a "request for proposal" for claims processors by late 1989 or early 1990. The deadline for having an electronic claims processing system in place is Jan. 1, 1991, the start of full coverage by Medicare of outpatient prescription drugs. PCS Exec VP and General Manager Robert Field notes in the wholesaler's August quarterly publication McKesson Today that PCS is ready to compete for a Medicare contract. "The nationwide on-line claims processing capabilities of Recap, coupled with our experience and expertise in claims management, place PCS in an enviable position to compete for this business" ("The Pink Sheet" Sept. 26, p. 6). The McKesson CEO told the analysts meeting that Recap II will be able to handle "500 mil. on-line transactions a year" by next spring. That number is "five times the volume PCS expects to process this year." Recap will have involved a $20 mil. investment "to develop the system and acquire the hardware," Field continued. It "will be one of the largest on-line networks in the country" and will be "readily expandable to process a billion or more claims annually." The system is an update of the Recap I electronic claims processing system PCS developed in 1985. Field noted there are "currently more than 14,000 terminals in place and over 10,000 more units contracted for. Our goal is to install the system in 40,000 retail drug stores" by December 1989. "In its initial phase - Recap I - the system instantaneously verifies cardholder eligibility and eliminates much of the paperwork, time, and errors of manually processing claims."
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