Long-Term Care Pharmacy Retains Value Despite Medicare Changes – ABC

The Centers for Medicare & Medicaid Services recognizes the value of services provided by long-term care pharmacy in its implementation of the Medicare Modernization Act, AmerisourceBergen says.

It is "clear to us in the regulations that CMS is interested in finding other ways to compensate our business for the value it provides," ABC President Kurt Hilzinger said during a recent conference call with investors.

AmerisourceBergen's PharMerica subsidiary is a pharmacy products and services provider that specializes in long-term care.

There is "clearly a place holder in the regulations regarding being paid for our compensative or clinical capabilities, which today is a real value added by our long-term care pharmacies," Hilzinger said.

The Medicare prescription drug benefit's long-term care pharmacy requirements aim to increase transparency and competition in the long-term care market by restructuring some typical industry practices.

No More Bundling

"Part D allowable costs do not include some of the non-dispensing services currently bundled into LTC pharmacy (for example, the Part D dispensing fee may not include costs associated with drug administration or other professional fees)," CMS notes in the preamble of the MMA Title I ¹ final rule.

"With the implementation of Part D there will be a need to price these services separately, creating more transparency for the costs and charges paid by LTC facilities."

"The greater transparency in pricing and competition for value-added LTC pharmacy services to be provided to LTC facilities should result in more competitive pricing for these services," CMS says.

In the final regulations, CMS outlines Part D long-term care pharmacy contracting and access requirements separate from retail pharmacy access standards.

"Given the risk associated with institutionalized beneficiaries, relying on the market alone to ensure that Part D plans include a sufficient number of long-term care pharmacies in their networks may not be sufficient."

"We believe it is essential to inject competition into the long-term care pharmacy market while preserving the relationships and levels of service that long-term care facilities now enjoy vis-à-vis their contracted long-term care pharmacies," CMS says.

"Any Willing" Long-Term Care Pharmacy

"We are establishing an 'any willing pharmacy' requirement specifically for long-term care pharmacies, coupled with a requirement that Part D plans develop standard contracting terms and conditions for long-term care pharmacies, such that any pharmacy in a service area could become an eligible long-term care pharmacy by certifying that it meets certain performance and service criteria for providing pharmacy services to long-term care facilities."

CMS will review plans' standard contracting terms, as well as the number of participating long-term pharmacies.

The performance and service criteria for a Part D long-term care pharmacy "will address access to urgent and emergency medications on a 24/7 basis, standardized prescribing systems, and the availability of one of several standard delivery packaging and delivery systems for routine medications," with further detail to be provided in CMS operational guidance.

Each Part D plan is required to demonstrate "convenient access" to prescription drugs for the long-term care patients in its service area. This determination will be based in part on the number of enrollees and the distribution of pharmacies in the region, with details fleshed out in further guidance.

Back To The Bargaining Table

Once Part D plans have established contracts with pharmacies, a long-term care facility will contract with one or more pharmacies to serve its Part D residents.

To minimize the number of pharmacy suppliers necessary to cover all Part D residents, a long-term care facility is likely to select pharmacies that participate in the largest number of Part D networks, CMS predicts.

Therefore, "all long-term care pharmacies in a region will have to negotiate terms and conditions with as many Part D plans as possible or risk losing this business to another more competitive long-term care pharmacy."

"This competition will preserve the one-to-one long-term care pharmacy/long-term care facility relationship favored by so many commenters, but will require a negotiation between the long-term care pharmacy and the Part D plan to maintain that relationship," CMS says.

A special enrollment period for institutionalized beneficiaries ensures residents can change plans if none of their facility's pharmacies are in their plan's network, CMS says.

CMS expects that market competition, access requirements and special enrollment provisions will ensure long-term care Part D beneficiaries have access to a pharmacy contracted with their facility.

Out-Of-Network Access Rejected

In the proposed rule, the agency considered allowing routine out-of-network access for beneficiaries whose facility's pharmacies did not participate in their plan's network. However, CMS determined that "given the narrow statutory authority to establish out-of-network access rules...access to out-of-network pharmacies on a routine basis" cannot be justified.

CMS also received comments recommending a separate prescription drug plan region to encompass all long-term care facilities.

"We understand that, given the institutionalized population's special needs, a carve-out of this population may seem logical."

"However, given the risk associated with institutionalized beneficiaries, we believe that carving out such a high risk population could result in unsustainable beneficiary premiums for the institutionalized population," CMS says.

Long-Term Care Definition Expands

The long-term care provisions will apply to a wider range of settings: the final rule expands the definition of "long-term care facility" to include "not only skilled nursing facilities...but also any medical institution or nursing facility for which payment is made for institutionalized individuals under Medicaid."

The broader definition "will allow for residents of a number of institutional settings to benefit from the special rules for access to covered Part D drugs established for residents of long-term care facilities," CMS says.

"We do not believe that the definition...should be expanded to include other facilities recognized by state law but not Medicare or Medicaid, regardless of whether some of these facilities contract on an exclusive basis with long-term care pharmacies," CMS notes.

Changes In Market Share Expected

The change in payments to long-term care pharmacy resulting from the separation of dispensing and drug fees paid by the Part D plan from other service fees has the potential to restructure the long-term care pharmacy market.

"We recognize that some LTC pharmacies in more competitive markets may face both demand for a lower cost structure from Part D plans and simultaneous pressure from LTC facilities for value-added services that were previously bundled," CMS notes.

Although one commenter suggested this would force some LTC pharmacies to reduce service levels or go out of business, "we believe that market competition in combination with our access requirements should result in effective negotiations between Part D plans and LTC pharmacies," CMS says.

"This transparency and competition may also provide more opportunities for small LTC pharmacies to compete on the basis of quality and service against larger players for LTC facility business."

More competition "may also open the door for new entrants into the market as LTC facilities restructure their existing contracts with LTC pharmacies. We anticipate that there may be changes in market share among the pharmacies that service LTC facilities."

Although long-term care pharmacies will lose some revenue in the Part D restructuring, the loss of service fees may be made up for in part through medication therapy management program revenue, CMS notes.

Medication therapy management programs, required under Part D but only loosely defined in the regulations, could become a major source of long-term care and retail pharmacy revenue for services not directly related to dispensing a Part D covered drug (² (Also see "Medication Therapy Management Standards Will Be Set In Practice, Not Regs" - Pink Sheet, 7 Feb, 2005.), p. 21).