Technology may provide answer to capitation woes

Once again, knowledge is power

If a practice is already taking major losses in pharmacy capitation, why would it invest money to turn the trend around?

Because the investment ultimately is worth it, according to a California practice interviewed by Physician’s Managed Care Report.

Why are practices getting hit so hard? James Selevan, MD, chief information officer for Mission Viejo, CA-based Monarch Health Care, cites these reasons:

Doctors need to learn more about pharmacy management. "We’re guilty. We’re not controlling the appropriate use of generics and lower-cost-brand agents," Selevan says.

Drug costs remain ambiguous. "Contracts with the health plans are so convoluted it is difficult to know what we’re being charged against," Selevan claims. "We may be charged against average wholesale price [AWP], and they are paying 15% below AWP. The health plan may know they get a rebate from the manufacturer, but that’s not passed along to us. While we may lose $500,000, they say the budget is $10 per drug, and it went to $14 in a particular case, even though they get a rebate." Is that unethical? "I would argue they are doing business," Selevan says.

Drug education and control are ineffective.

"We have not effectively implemented education and control to tie drug prescribing to diagnoses and adverse drug reactions, and also to tie the formulary to the patient demographics," Selevan says. Information technology can address these problems, he says.

Monarch expects to invest $3.5 million in the information system that is intended to make pharmacy capitation more manageable.

"We expect savings in these areas via the electronic medical record," Selevan says. "The problem now is that you walk in the doctor’s office and the doctor wants to prescribe an antibiotic. He or she has to refer to 15 different formulary books." In the computer system under development, each patient medical record would link to the appropriate formulary, any kind of generic drug possibilities, any history of adverse reactions, recommendations for appropriate drug prescribing, best practices, and other related clinical and financial information.

Monarch’s approach sounds almost simple in description, though obviously not in implementation. Monarch is designing an electronic medical record that will make each payer’s drug formulary readily available on computer screens, and perform a host of other functions to rapidly deploy good judgment in both quality and cost-effective drug prescribing.

"We contract with 15 health plans," Selevan explains. "Health plans define their formularies, and we have to follow 15 different ones. Health plans purchase the drugs from the manufacturers and provide them through their networks.

"In most cases, we are at about 50% risk on the drug budget," Selevan says. Thus, for example, if the health plan has allotted $10 in the PMPM for pharmacy costs, and it comes in at $14, then the practice’s responsibility would be $2.

While all the functions of the information system are expected to take three years to be completed, the immediate benefits will provide ready reference to individual formularies, patient records, and available generics. Monarch officials expect that alone to go a long way toward reducing the risk of overriding pharmacy cost targets.