How Revenue Integrity in Pharmacy could Supercharge Your Organization

At the onset of the 2022 calendar year, COVID-19 continues to have a substantial financial impact on our organization and core business model. These challenges are largely being driven by increased contract labor costs, reduction in elective procedures, and a higher-than-normal patient length of stay. Federal funding provided by the CARES Act continues to provide critical relief, however most U.S. hospitals reported margin declines for the first quarter of 2022. As our entire industry faces similar challenges, this represents a unique opportunity to evaluate pharmacy revenue integrity and explore new strategies for improvement.

Most hospitals and health systems are aware of the costs associated with their pharmacy program; less are aware of the revenue potential waiting to be unleashed. Pharmacy leaders are often held accountable for reducing pharmaceutical spend through contracting and utilization efforts. The other side of the story, depending on the site of care, is that pharmaceutical spend could equate to optimized financial performance, if managed appropriately. Unfortunately, in many health systems there exists a barrier between health system finance and pharmacy leaders that prevent the level of synergy required to strengthen the pharmacy revenue integrity opportunity. 

The Physician-Administered Drug Program is a program that refers to pharmacy products and medical injectables that are purchased and administered in a provider’s office or in a hospital outpatient clinic setting. These include injectable drugs and drugs for IV administration. What is unique about this setting is that drugs are separately reimbursed through the medical benefit versus bundled payments seen in the acute setting. Securing reimbursement for medications in this setting is a complex multi-step process. As health care insurers increase their restrictions on which drugs can be infused in which setting and the growing pipeline of ultra-high cost specialty medications intensifies, having a clear strategy around this process is critical.

Disparate Data. The combination of people, processes, and technology are still insufficient in answering the basic question, ‘Do we know how much we were paid for this service/drug administration?’. Unfortunately, hospitals and health systems struggle to identify areas where they generate a net profit or loss. A key challenge to answering these questions is most organizations have information about pharmaceutical costs, drug utilization, and reimbursement scattered across different systems and databases that don’t communicate with one another. Pharmaceutical costs are managed by the department leader in pharmacy, which can be influenced by drug shortages, contract negotiations with wholesalers, and price escalation. Drug utilization can be monitored by pharmacy but is more often dictated by formulary design and physician behaviors. Finally, the reimbursement of these drugs is managed by a finance and managed care team who are often isolated from the clinical and operational decisions being managed by the patient care team. The result is organizations asking teams to address problems that are not core to their business or experience. The goal should be to promote collaboration between pharmacy and finance to enhance communication, share information, and optimize efficiencies.

Prior Authorization. Although touted as a cost-savings measure by health insurers, the practice of prior authorization has an administrative and patient-care burden that requires further evaluation. An effective prior authorization process is essential in preventing patient care delays, preventing denials, and ensuring reimbursement for costly drugs. Often, hospitals and health systems require the provider and clinic staff or a centralized prior authorization team to complete the prior authorization process for their patients. These teams may be ill-equipped to manage the complexity that health care insurers require. The most common criteria involved with prior authorization decisions involve indication, dose, duration, labs and results, and previous therapies. Criteria in which the pharmacy team is most qualified to provide, but rarely involved with the process. In addition to prior authorization requirements, the process has introduced greater scrutiny over the years:

- Biosimilars are biologic drugs that are highly similar to and have no clinically meaningful difference from an existing biologic medicine (the reference product) that is already licensed by the U.S. Food and Drug Administration. Biosimilars represent a unique opportunity to reduce health care costs yet have barriers to adoption and implementation. One barrier is that health care insurers each have different preferred biosimilars (or prefer the reference/originator product) on their respective formularies and reimburse at markedly different rates depending on the drug. This can result in confusion at the prior authorization stage as each biosimilar has a unique J-Code (Healthcare Common Procedure Coding System procedure codes for non-orally administered medication and chemotherapy drugs) that must also align with the insurers formulary. Coupled with the known challenges of linking drug costs with reimbursement, it is probably that most hospitals and health systems are unaware of how to maximize reimbursement within this class of drugs.

- Step therapy is another cost-saving tactic employed by health insurers that requires patients to try a lower cost drug before trying a similar-acting, but most expensive drug. 

Though this practice has been utilized in retail pharmacy for years, increased utilization of these tactics in hospital outpatient departments have been noted. Appropriate documentation and rationale for treatment decisions could be the difference between timely payment and a denial. 

- Site of care can be dictated by insurers where the choice for physical location of infusion administration is dependent on insurer contract terms rather than patient or provider preference. Further adding to the complication, insurers may allow the initial infusion (or first 30 days) to be completed at a clinic or providers office, before requiring the patient transition to home infusion or a stand-alone infusion center.

- One of the more controversial insurer tactics is known as white bagging. This is where an insurer will only approve a drug for administration if the medication is supplied by a third-party specialty pharmacy that is associated with the insurer. These practices have real consequences for patient care (delay of therapy, inability to adjust dosing, etc.) and health system finances. The past year has seen several state legislators review the practices and enact laws that limit or prohibit the tactic.

Philanthropic Opportunities. One overlooked aspect of pharmacy revenue integrity surrounds the various philanthropic opportunities available to patients and health systems. Over $30 billion in medical financial aid is available annually to patients. This is in the form grants, funds, co-pay assistance/waiver, manufacturer assistance, and other programs. Despite the opportunity hospitals and health systems often struggle to connect patients to these resources. This results in excessive out of pocket requirements for vulnerable patients, patients delaying or refusing treatment due to unaffordable costs, and/or increased uncompensated care provided by hospitals and health systems.

Charting New Territory. Within our current challenges, we can use this pressure to chart a more fulfilling direction for the pharmacy enterprise. To achieve this aim, your organization must commit to embedding pharmacy expertise in the revenue cycle process and leveraging technology to automate traditionally manual processes.

The first task thankfully has an established blueprint available. Although most hospitals and health systems have maintained their silos between pharmacy and finance leadership there are numerous real-world examples of the benefits found in collaboration. This includes improvement throughout the prior authorization process (faster turnaround time, higher prior auth approvals, and reduction in denials) and enhancing philanthropic opportunities by having patient advocates in the pharmacy department.

Our organization is evaluating two opportunities designed to enhance collaboration between pharmacy and finance by providing actionable data to teams that can address the issues. The first opportunity is ensuring that we understand whether specific provider-administered drugs provide a positive or negative net margin to the health system. Although most organizations lack visibility to into specific drug margins, new software products are helping provide transparency. What if a pharmacy leader could see their reimbursement history broken down by drug, insurer, and location? How about if that reimbursement information was connected to purchasing data to provide accurate margin for all provider-administered drugs? The result would be a pharmacy team that could connect clinical and operational decisions to the downstream financial impact in real dollars. This information would help optimize strategies around the utilization of biosimilars, provide critical negotiation data for managed care contracting, and help prioritize clinical and operational resources to higher margin activities.

Another emerging partner for us is automating philanthropic opportunities for patients receiving medications across the continuum of care. The vendor uses machine learning to process distinct characteristics about the patient, their plan of care, and financial circumstances to identify and connect them to financial resources. Those dollars can be used to pay for their care at our organization or can be used in their supportive care requirements. By connecting patients to resources we have the chance to reduce financial toxicity and deliver more financial support to a greater number of patients in our community.

As we continue to explore these partnerships it’s helped my organization to gain an appreciation of the financial potential that can be uncovered within the pharmacy. We don’t profess that we can fix all the challenges that hospitals and health systems are currently undergoing. What we can do is ensure that for the services we provide, when it comes to drugs, that we understand how we are reimbursed and how we can enhance that reimbursement equation. As leaders let’s ensure we align expectations with those that have the appropriate expertise.