IndyHealth, Glumetza, AWP spread, and Why We Can’t Have Nice Things™

In an AWP-based world, only the scammers survive

By now, you may have heard that IndyHealth, the independent pharmacy owner owned Medicare Part D Plan is about out of cash, less than 3 months into its existence. On message boards, folks are blaming the actuaries for dramatically underestimating the plan’s risk. However, I’m quite certain that I know where the blame for the failure of this company lies, and it isn’t on the actuaries.

There is a certain class of pharmacy owners who are, put simply, the worst. They are the “scampounders” who ruined insurance billing of compounded therapies (“Pain creams” are not worth $10,000 a month. If you bankrupted a small town government through your compounding, know that I really dislike you). They are the “compounders” that caused the existence of the Drug Quality and Security Act (QA processes are not optional, people. You can’t just sterilize half of your batches and let mold grow in your lab). They are the folks that think that “therapeutic optimization” means revenue optimization (Glumetza MIGHT be a good idea for 1 in 10,000 people, but you’re going to have to sell me on that one). They are the owners who think that sub-therapeutic or supra-therapeutic doses of medications are ok because they are making $10000 per prescription dispensed. (Looking at you, vancomycin foot baths, gallons of lidocaine 5% and diclofenac 3% gel). There is, I think, a common thread throughout all of these scams.

That common thread is a lack of understanding of who is on the other side of the PBM. It is a lack of understanding that when you bill Caremark or OptumRx or Express Scripts and exploit a weakness in their MAC price table or utilization management system, you are NOT “sticking it to the big 3.” Pharmacy Benefits Managers are primarily pass-through entities. They facilitate billing, but they aren’t the ones paying the bills. The folks paying the claims for your $10,000/month pain creams are your uncle’s union, your cousin’s small business, and your friends and family in the form of higher premiums. On the other side of those MedImpact-adjudicated claims was not CVS but your fellow pharmacy owners, whom you have so successfully scammed that the business has failed.

In the case of IndyHealth, the short-sighted and small-minded pharmacy owners who discovered that Indy allowed you to bill your favorite scam medications and paid out a high allowed amount for those claims are 100% to blame for the failure of this start up. Medicare Part D specifically requires that plans cover pretty much all therapies for one month to allow patients to transition to formulary therapies without disruption in care. The point of that is to make sure that people don’t have gaps in therapy, not to allow you to destroy the financial standing of the plan. Congratulations on making a few thousand off the backs of your fellow independent pharmacy owners – your greed has killed the golden goose and robbed the good faith pharmacists who just wanted to have AN option for their patients that wouldn’t steer their patients away and wouldn’t take all of their margin back in the form of DIR fees. You are why our profession is struggling to survive, because apparently we can’t be trusted.

No actuarial model of ~40,000 enrollees expects that a large fraction of those enrollees will switch from being on $4/month metformin to $1000/month fancy metformin. Nor can it withstand having exclusively high risk members – I’m fairly certain that the 40,000 enrollees that Indy brought in were overwhelmingly the people taking 15+ medications every month and NOT the folks taking 0-2 generics per month. Trying to pay for the therapies for high risk members on the $33.50/month premium from the rest of the risk pool is a fool’s errand. So please stop blaming the actuaries and accept the blame yourself. You are the worst. Do you recognize how much work people like me have done over the past 15 years to build trust in independent pharmacy organizations after the failure of Community Care Rx? Obviously not, because apparently you are just in this profession to make a buck for you, not to build a sustainable future for all of us.

Consider the impact of this failure of the efforts to build competitors to the giant vertical monopolies – your greed will assuredly cause substantial skepticism of the efforts of Troy Medicare and of Exemplar Health and the next generation of pharmacists who want to do things differently to assure people that these programs are not the second coming of CCRx, that it’s not a waste of time and money to build up these organizations. I am furious, and I’m not even an investor in Indy. We can’t have nice things as a profession because of the enormous greed of a few players.

This should serve as a huge warning to Exemplar – if you want to maintain the trust of your investors, you apparently need to adopt the same tactics as Caremark and Prime to cut off the scammers – rigorously review all claims over a certain $ threshold, adopt a list of “naughty” NDCs, and over the course of a few days (not weeks – Indy only lasted 11 weeks!) cut off the ability to bill ANY claims to pharmacies that bill a single claim for the naughty list. In addition, you should really strongly consider alternative pricing models from the traditional scheme. Troy Medicare pays pharmacies at NADAC plus a minimal dispense fee. NADAC isn’t perfect, but there’s a whole lot less opportunity to run these scams using a NADAC file than using an AWP file. Just looking at generic Glumetza for example – an AWP file will result in you paying a % of a $10,820.07/90 tablet AWP, not its $884.12/90 tablet NADAC.

Exemplar should also make sure that it is clear in its communications efforts to its investors that to survive it needs a LOT of low utilizer patients. Insurance products like a Medicare Part D Plan need premium dollars flowing in from low-risk folks in order to pay out the claims for the high-risk folks – adverse selection of a disproportionate share of high risk patients presumably played a substantial role in Indy’s failure. However, I firmly believe that the main issue affecting Indy’s survival was the pharmacy owners scamming Indy to death because they think that the other side of the PBM is just made of endless money.

More broadly, we’re seeing the function of current American economy in microcosm. Our CEOs and thought leaders have a short term mindset to maximize their own profitability now at the expense of anyone and anything else. This short-termism is what killed Toys R Us or frankly any business that doesn’t generate bottomless profits in the short run. Toys R Us was a PROFITABLE business when it went under, but its investors had taken out so many loans and taken so much cash out that it couldn’t generate enough profit to pay its debts. The short term need for high profits NOW is Why We Can’t Have Nice Things in the United States.

My challenge for my readership is to consider this axiom: You can’t claim that independent pharmacy is bringing net value to end payers through our awesome synchronization-based disease management and care planning functions if you are simultaneously bilking those end payers out of tens of thousands of dollars through the scam mindset. I could go on and on about the various scams that folks engage in. Consider this though: If you were collecting a capitation fee instead of billing fee for service, would you buy what you are selling? If I told you I’d give you a flat $400 every month for every one of your patients and you had to use that money to improve the quality of their pharmacotherapy to ensure that they were meeting the goals of their therapy, would you be putting them on Glumetza? Lidocaine 5%? Diclofenac 3%? Vancomycin foot baths? Levamlodipine? Zegerid? Fenoprofen? Vimovo? Remember: in this fantasy world that’s your SOLE payment. You aren’t billing a claim for their prescriptions. You are getting a flat $400/month regardless of which medications they are on.

I think we all know the answer to that question: no. Because the therapies I’ve mentioned have ZERO value relative to their increased cost over the therapies that we would choose in a sane world. Baking soda mixed with omeprazole doesn’t magically make omeprazole work better, but it sure does bring in the cash in an AWP scam world.

Perhaps one of the most upsetting things to me was learning that some of those that were pushing these scams the hardest on Indy were investors. That fundamentally does not make sense to me. You would invest money in a business and then systematically destroy that business’s financial state. I suppose that the allure of making $1000/Rx is so powerful that it overwhelms the rational thought processes of these investors.

I suppose the point of these pages of diatribe against the most financially successful pharmacy owner/scammers is to say that pharmacy desperately needs a different payment model. The status quo pharmacy reimbursement model is purpose-built to scam end payers out of as much cash as possible, not to fairly compensate pharmacists for their professional services. I think there are two ways to transition pharmacy from this horrible system to one that is fair for all: 1) remove third party payers from the system entirely and rely on first party payments only. It’s a lot harder to convince Mrs. Jones across the counter from you that she really needs to pay 100x as much for her heartburn pills than to convince her insurer to do the same. 2) If we’re married to third party payments, convert to a NADAC plus professional dispense fee plus a capitated disease management fee (like Troy Medicare is doing!). And make all forms of rebates illegal so that NADAC is actually the average true cost of the therapy, not a figure inflated by wholesaler games. Either of these options would destroy the scammers in the system, both the scammy pharmacy owners and the AWP/spread based PBMs and the insurance carriers that play along because higher cost means higher premiums and higher profit.