Long-Term Care

Paying for medication: What you can do to make cost-saving improvements in your facility

Contemporary Long-Term Care Weekly, November 20, 2008

Paying for medications in your facility is a complicated and expensive process. There are a multitude of payers that one resident may be under during his or her stay in a single month. “The clinical state of the resident, resident needs, and the resident’s last hospitalization may dictate the payer of these drugs,” explains Alan Bronfein, executive vice president of Woodhaven Health Services in Baltimore, the largest independent institutional pharmacy in Maryland.

Different types of payers
The Medicare Part A benefit is accessed when a resident leaves the hospital and still has a skilled need and has spent at least 72 hours in the hospital before admission to the nursing home. If these requirements are met, the resident may fall under the Medicare Part A benefit, Bronfein says.

The facility is responsible for all care under the Part A benefit, including all drugs used during the stay. An MDS assessment is performed on the resident at various intervals to determine the skilled need of the resident and the amount of nursing and other services required.

“In this case, the pharmacy bills the nursing home directly for the drugs,” Bronfein says.

Medicaid recipients who also have a Medicare benefit are known as a dual eligible. The drug component for a dual eligible falls under the Medicare Part D program. In this case, the pharmacy bills directly to the Part D plan (PDP), and the PDP directly pays the pharmacy for those drugs that are covered under their benefit, says Bronfein.

There are also Medicaid-only residents, who are not eligible for the Medicare Part D benefit because they are under the age of 65; therefore, they fall under the state Medicaid program. The pharmacy directly bills the state Medicaid program, which pays the pharmacy.

This is standard for all states, Bronfein says.

Finally, there are private-pay residents, who only have their own insurance or pay cash. The pharmacy charges are between the pharmacy and the resident, he says.

“Almost 70% of residents are a combination of Medicare Part D or other third-party insurers, and 60% of that is typically Medicare Part D. Additionally, 25% fall under the Part A benefit, and 5% are private-pay residents,” says Bronfein.

Before the Part D program, those numbers were very different—the private-pay benefit used to be about 25%. “The Part D program has changed the dynamics,” says Bronfein.

Budgeting for drugs
Nursing homes usually don’t have to budget for their drug use for residents under Medicaid, Medicare Part D, and private pay. These payments are coordinated between the resident (or the insurance plan) and the pharmacy, says Bronfein. “The Part A drug component is the only drug expense that nursing homes have to budget for of all the different payer classes,” says Bronfein. The facilities’ concerns are to determine how to best manage these costs to an amount that is within their budgets. The key is how they control the use and mix of drugs that the pharmacy provides, he explains.

The MDS assessment performs an algorithm that ultimately determines the resource utilization group (RUG) category that equals the per-day rate the facility is paid. There are skilled RUG rates that vary from $250–$600. Nursing homes use this to budget how many days they are going to be paid within each rate level, says Bronfein.

SRM program
Woodhaven developed the Strategic Relationship Man-agement (SRM) program to proactively assist its customers in understanding the financial drivers that make up their monthly pharmacy bill. The detailed report provides a complete financial analysis of the cost of drugs and other factors that contribute to pharmacy costs, says Nancy Burns, vice president of client services for Woodhaven.

Woodhaven analyzes costs by examining:

  • Where money is spent
  • High-cost drugs
  • Trends in spending
  • Physician prescribing habits
  • Noncovered medications

“When we go into a facility, we usually meet with the administrator, [director of nursing], a billing representative, sometimes unit managers, and we review the cost analysis with them. Then, we identify areas to work on together to develop a plan to reduce spending and then measure improvement,” says Burns. Other Woodhaven staff members are brought into the plan, including consultant pharmacists, claims management, and billing staff.

“Part of the function of the SRM is to help nursing homes understand how they can make changes to the way medications are being prescribed, so they have better clinical and economic outcomes,” says Bronfein.

Under the Part A benefit, nursing homes have to provide all of the services they are going to give a resident under one rate per day.

“If you look at a nursing home [profit and loss], labor and pharmacy represent the largest portion of variable cost, so the ability to control these costs is critical to a nursing home’s financial success,” says Bronfein.

How to save money
The SRM process starts with a global view of drug spending and then focuses on high-cost drugs.

At a macro level, the SRM benchmarks the facility to the rest of the region’s facilities in areas such as cost-per-patient day, number of scripts per resident, and high-cost drugs. “Because each facility is unique, there are different opportunities for savings depending on the payer mix, drug mix, and physician prescribing habits,” says Jennifer Hardesty, clinical services manager at Woodhaven.

“One of the number-one costs on many facilities’ drug bills is a drug called Procrit,” says Hardesty. Procrit is an injection given to residents with anemia to keep them from needing blood transfusions, Hardesty explains.

“The shots cost anywhere from $200–$1,000 per injection and can be given one to three times a week,” she says.

One of the first barriers is that drug prescribers aren’t aware of what drugs cost.

“Nursing facilities may see their drug bill as a whole but don’t drill down to see what certain drugs cost. The SRM opens their eyes to awareness by showing them how much money they’re spending at the individual drug level,” says Hardesty.

Although it is important to manage costs, the first concern is to determine whether the drugs are clinically appropriate to ensure patient safety, says Hardesty. Coming up with a solution to make sure that the use of the drug is appropriate along with controlling use and cost is the next step, she adds.

“We created a specific order form for Procrit, and it helps guide the nurse or physician ordering the drug to ensure appropriate usage,” she says.

Appropriate usage leads to optimal clinical outcomes, less drug waste, and fewer denied insurance claims.

Managing drug spending has become a complicated process, says Bronfein.

The SRM program enables facilities to better understand the challenges related to drug use and cost. The goal of this program is to work in a collaborative way to enable the facilities’ clinical, operational, and financial success.

Making medication management a priority
Paying for residents’ medications is an ongoing problem, but when does it reach the point that you need to look for outside help?

“We’ve known for years that using outside pharmacies is very costly—particularly for private-pay residents, says Dorothy Poole, director of nursing at Brooke Grove Retirement Center in Sandy Spring, MD, and a participant in the Strategic Relationship Management process of Woodhaven Health Services, an institutional pharmacy in Maryland.

“One of the benefits of setting up a process to streamline drug usage is the availability of having medications on site. It is easier for a nurse or clinician, and it is helpful to be able to order in bulk instead of waiting for the pharmacy,” says Poole. “For example, oftentimes, people order Tylenol and never use [it], but we still buy it, so in return, we always have it on hand,” she says.

Developing a set process has been most influential with communication, says Poole. “It’s extremely helpful to have a report that tells us how well we’re doing, and that gives areas of growth,” she says. Having a process set up also provides strategic, methodical, and detailed ways to save money, she adds.

“When everyone is informed, everyone is communicating, and issues are identified as they come up; everything runs smoothly,” says Poole.


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