Managed Care contracting in an ASP World

1
Managed Care contracting in an ASP World

• John E. Hennessy
• Executive Director
• Kansas City Cancer Center

2
What do we know?

• We have challenged worse, and we got italmost.
• ASP 6 seems about as close to floor as we can
  get
• Only 3 of transitional payments for
  administration left to be stripped
• Demonstration project for 2005 2006?

3
What do we know?

• Most commercial payors still dont know what ASP
  is the prescription drug business is still AWP
  driven.
• 2005 Admin codes use G-codes, which commercial
  payor systems do not like.
• This means that the 2004 compensation models are
  much more likely to be administerable than 2005.

4
What do we know?

• On the surface, the managed care business seems
  more desirable than Medicare
• This may depend on fee schedules and specialty
  pharmacy involvement
• So the supply of interested partiesboth
  physicians and hospitalsmay be increasing for
  managed care payors

5
What do we know?

• Employers continue to favor choice over cost
  containment, but continue to put the economic
  burden of that choice on employees
• Uninsured populations are growing
• Underinsuredincluding employed and Medicaidmay
  be the biggest risk

6
What do we know?

• Here come the middlemen
• Disease Management companies playing the margins
  on drug costs, earning a percent of savings
• Specialty pharmacies offering rollback pricing

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What dont we know?

• Fall out from MMA
• Retirements, closures, mergersstill to early to
  tell
• When will hospitals realize that they are at
  equal or greater risk on drug reimbursement
• Drug pricing in 2005increases? How will drug
  prices increase?
• What is in the market basket? (examples, Iressa,
  Abraxane)

8
What dont we know?

• The future of HSAs.
• HSAs are far more favorable for the types of new
  patients we see in oncology, than are FSAs
• Auto-debit features would dramatically reduce
  providers cost of collection
• Benefit limitsalready exist for BMTbut are high
  costs drugs next on the horizon

9
What does it all mean?

• Lots of moving parts for everyone in 2005
• Predictability is always better than
  uncertaintyfor both buyers and sellers
• Demand for cancer services will growdemand for
  diagnostic and chemosensitivity and other
  predictive tests

10
Thanks, Edisonwhat are we supposed to do with
all of this knowledge?
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Strategies versus Tactics

• All of the strategic thinking in the world can be
  made valueless by poor tactics
• Fundamentally, managed care negotiations are a
  game of chicken
• You must be able to pull the trigger

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The Prisoners Dilemma

• Ultimately, both parties are better off by
  cooperating,
• But each party could enhance its position
  relative to the other by not cooperating, while
  the other does
• Both parties lose big if neither cooperates

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The Prisoners Dilemmatranslated

• Both parties win if the future is predictable and
  sustainable
• Both parties lose if patient care relationships
  are severed
• However, either party can put an unbearable
  economic burden on the other that would shield
  short term gains

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Strategic positioning for success

• Describe the model for success using The 4 Ps
• Product
• Place
• Promotion
• Price

15
Product

• Solo practitioner medical oncology only practice
  is very undesirable from a payor standpoint
• High cost to administer more likely to be low
  tech
• No peer review
• Consolidated practices are attractive to payors

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Product

• Multi-modality practices become more of a threat
  to payors, but also carry greater market presence
• Adding XRT, diagnostics
• Product enhancements that are beneficial and
  non-threatening genetic counseling physician
  extenders social workers etc

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Place

• You need to be someplace where nobody else is, or
  have dominant position in a key market, or be in
  many key markets
• Again small practices are at great risk here
• Place--or recognition of place by payors,
  patients, and referring physiciansmay be very
  dependent on promotion

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Promotion

• If no one knows who you are you wont be missed
• Your practice needs to be recognized as part of
  the fabric of the communitysomething that the
  community will not allow to be missing
• Not necessarily advertising, but unprompted
  recognition tells you that you have made it as an
  institution

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Price

• Give your self some room
• Your list price should have plenty of room to
  create savings for negotiators
• (have a cash payment policy, that treats cash
  patients like managed care plansoffering them a
  discount based on 100 compliance rather than
  mere numbers of patients)
• Be prepared to negotiate, not capitulate
• That means risk not just bravado

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Yeah, thanks Mr. Trump, but how do I translate
that into my world?
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Tactics

• Rally the troops
• You need not merely a strategic plan for managed
  care contracting, but a tactical plan as well.
• You absolutely need all physician/owners on board
  with any negotiation one contact with health
  plan, not each doctor conducting his own
  negotiation

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Tactics

• You MUST consolidate contractsone for the Tax ID
  number
• Physicians employment agreements should not
  permit physicians to sign individual dealsonly
  the corporate entity
• Health plans will roll over on this, but you must
  push

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Tactics

• Find the healthplans Achilles Heel
• Do they understand ASP or AWP?
• Do they understand the transitional payment
  element of administration codes in 2004?
• Can they administer the new G-codes?
• How much attention are they paying to imaging?

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Tactics

• Understand your own business
• You need to know what you are selling, both units
  and price
• You will want to have the tools that allow you to
  evaluate the impact of differential compensation
  on different lines of business
• How will your market basket fare in 2005

25
Tactics

• You must clearly understand how to swap admin
  codes against drug reimbursementhow do
  increases/decreases in each line of business
  impact your bottom line.
• The greatest managed care opportunity is to
  inequitably rob Peter to pay Paul

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Tactics

• Look to broaden you product line to create
  margins in new lines of business where margins in
  existing lines disappear
• Imaging
• Diagnostic testing
• Non-oncology infusions
• Genetic testing

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Tactics

• Pull the triggerbe prepared to and do terminate
  contracts as a standard course of renegotiating.
• No specific intent to not participatein fact you
  can be very open about your intention being to
  renegotiate.

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Tactics

• Negotiate insured versus non-insured business
• More employers are self-funding and renting
  networks the payors who rent these networks are
  more concerned about costs for their insured
  business than rental business. We offer greater
  discounts on insured business in exchange for
  limited discounts for rental business, which
  allows an aggregate increase in payor yield

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Fundamentals

• Get organized
• Analyze
• Take Action
• Negotiatebe flexible where you can but keep your
  needs in mind
• Remember the Prisoners Dilemmaa cooperative
  result with both parties winning is the best
  outcome

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Sample managed care results in Q3 Q4 2004

• National Payorterminated contract3 year
  contract preserving 2004 admin codes and AWP as
  payment base, trading AWP for admin
• National Payorterminated contract2 year
  contract implementing 2004 admin codes and
  maintaining AWP as payment base
• National Payorterminated contract3 year
  contract implementing 2004 admin codes and
  maintaining AWP as payment base

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Next steps

• What three things are you going to do this week
  to follow up on this call?
• Questions?