By: Eileen Auen, Chairman and CEO, PMSI
Maximizing network penetration is one of the ways a PBM program can manage workers’ compensation pharmacy costs. The higher a PBM’s network penetration rate, the greater the opportunity to gain insight into utilization patterns and to control costs. The problem with relying too heavily on this type of performance indicator is that there is no standard calculation used across the industry. Consequently, PBMs have developed their own calculations to evaluate and communicate network penetration. This approach often leads to confusion and difficulties for customers to compare performance across PBMs.
The industry has changed dramatically over the past few years, yet many of the reporting methods have stayed rooted in the past. Specifically, here are three major issues that affect the calculation of network penetration today:
- Controllable vs. uncontrollable costs
Not too long ago, it was common to label billings from third party specialty providers, such as clinics, doctors’ offices and hospitals, as “uncontrollable,” simply because converting them to in-network transactions was so difficult. As a result, these billings were removed from the network penetration calculation, resulting in an artificially inflated network penetration rate.
Thanks to technology, connectivity between PBMs and providers is much more accessible; therefore, converting third party providers to in-network is not as difficult as in the past. Because of this, removing third party and out-of-network billings from the network penetration calculation ignores a significant (for some payors up to 30%) portion of the total spend for the client. Plus, it’s to the advantage of the employer, injured worker and the PBM to bring these transactions in-network, so that the entire therapeutic regimen can be properly managed.
- Dollar vs. transaction
Many PBMs calculate network penetration based on the dollar amount of in-network billings divided by the entire dollar amount billed, including all non-contracted pharmacies and specialty networks. While the dollar value of the bill is important, is not as accurate in demonstrating the breadth of the PBM’s network management capabilities. The difference between an in-network pharmacy bill and an equivalent out-of-network pharmacy bill is the benefit of applying contract rate savings. Therefore, comparing the two based on dollar amount is an “apples to oranges” comparison, as out-of-network bills will naturally be weighted more due to the absence of the contracted rate savings.
A more accurate way to calculate network penetration is by looking at all of the transactions that occurred, regardless of cost. This normalizes the differences in the average cost per transaction for in-network versus out-of-network bills.
- Paid date vs. fill date
Another factor in calculating accurate network penetration rates is looking at the fill date as opposed to the paid date. For a variety of reasons, out-of-network transactions can take months, and in some cases, years to process. This delay relates to the paper nature of out-of-network bills, lack of connectivity between PBMs and out-of-network providers and re-bills/reconsiderations. In contrast, in-network transactions are real-time. Thus, network penetration can be impacted significantly using paid data as it contains old bills. The use of fill date provides a much more real-time and accurate view into the performance of the PBM and the current program that is in place.
Much has changed over the past five years in the workers’ compensation industry. What was once appropriate reporting no longer reflects market realities. Clients need, demand and deserve a more accurate picture of their total workers’ compensation pharmacy spend, encompassing all the drivers of spend. As a result, payors will be more able to accurately and effectively monitor PBM performance.
About Eileen Auen
Eileen Auen is the chairman and CEO of PMSI, a leader in developing solutions to control the growth of medical costs in workers’ compensation. In 2010, Auen was named one of Business Insurance’s Women to Watch. In 2011, she was selected as Business Woman of the Year, in the Business Services category, from the Tampa Bay Business Journal. Eileen’s previous positions include serving as CEO of APS Healthcare as well as executive positions at Aetna, CIGNA and HealthNet.
Founded in 1976, PMSI is a leader in developing solutions to control the growth of medical costs in workers’ compensation. As one of the nation’s largest and most experienced companies focused solely on workers’ compensation, we deliver proven solutions for cost containment across the claims lifecycle. PMSI’s solutions for Pharmacy, Medical Services and Equipment, and Settlement Solutions deliver quantifiable results and improve the quality of care for injured workers. We provide our customers with the innovation, focus, expertise, analytics and technology needed to successfully deliver workers’ compensation benefits.
For more information on PMSI’s proven solutions for cost containment, visit: www.PMSIonline.com/vision
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This is not a paid placement.