LTC Pharmacies Should Fight for Incentives, Not Exceptions

Most of the debate regarding the "seven-day-or-less" dispensing legislation in the Patient Protection and Affordable Care Act (PPACA) revolves around the actual cost savings to Medicare Part D. While cost savings may have been a catalyst for the provision, the direct cost to Medicare is not the only negative consequence of medication waste in long-term care (LTC). As such, it is crucial that the Centers for Medicaid and Medicare Services (CMS) and the LTC industry as a whole consider all of the issues surrounding waste, including the environmental impacts, opportunity for diversion, potential for medication errors, drug destruction/disposal costs, and cost to other payment providers, when developing and implementing the regulations for this new law.

The actual cost savings of reducing supplies from 30 to 7 days is unknown. The Congressional Budget Office (CBO) estimates the savings to Part D at nearly $6 billion over ten years. However, at a recent conference held by the National Council for Prescription Drug Plans and the American Society of Consultant Pharmacists (ASCP), the Long-Term Care Pharmacy Alliance (LTCPA) presented a study that refuted these estimates. According to the LTCPA, a coalition between the two largest pharmacy providers and the largest group purchasing organization (GPO) in LTC, waste only accounts for 2.9% of Part D revenue. These two pharmacy providers, which own over 60% of the market, stand to lose a lot with this legislation, if not properly compensated. Plus, they have billions of dollars invested in infrastructure for dispensing 30-day punch-cards. Therefore, LTCPA has lobby against this legislation from day one.

Unfortunately, the LTCPA study only includes oral solid medications that were returned to the pharmacy and not the actual unused and/or wasted medications. Therefore, this estimate is considerably low since it does not account for the cost of medications destroyed at the facility, including controlled substances, which cannot be returned to the pharmacy. Despite this oversight, LTCPA still estimates an annual savings of $125 million, approximately $1.25 billion over 10 years. On the other hand, a study conduct by an LTC pharmacy that already dispenses in daily supplies shows that the cost of medications would be reduced by 17% when going from 30 to 7-day supplies and up to 26% with daily dispensing. That represents a $700 million to $1 billion annual savings to Medicare, which is even higher than the CBO estimate. This study, which includes all medications dispensed to Part D residents, projects the cost of the prescriptions if they would have been dispensed in 30-day quantities, rather than daily. Since this study accounts for all medications, not just the ones returned to pharmacy, it is likely to be more accurate. However, most industry experts believe the actual cost of medication waste is probably somewhere in between. However, none of these estimates include the cost savings for other payment sources, such as Medicare Part A, commercial insurance, and private pay individuals, that cover over 20% of the residents in LTC facilities. Ignoring this large segment of the population, which is higher in acuity and often requires more costly medications, is extremely short-sighted.

Using their estimate, LTCPA concludes that the cost to implement the regulation far exceeds the cost savings to Medicare Part D. Therefore, LTCPA is lobbying to have the legislation restricted to brand name and high cost medications of $400 or more. Many in the industry believe, largely because of the lobbying power of the LTCPA, that the Centers for Medicare and Medicaid Services (CMS) will adopt this restriction, at least in the near-term. While this limitation would still reduce the direct cost to Medicare Part D, it does very little to address the bigger picture. Limiting the legislation to brand name and high cost medications, which only account for 20% of the doses dispensed in LTC, will not solve the impact of waste on the environment, diversion of controlled substances, medication errors, or cost of drug disposal. For example, many low-cost generic drugs are hazardous to the environment or very prone to diversion. So, despite their low cost, an over-supply of these medications has other environmental and social impacts. Furthermore, nurses would still have to contend with the excessive amount of drugs in the nursing home, which costs additional time and money to manage and can lead to medication errors. Therefore, LTC pharmacies and facilities will still have to find ways to address these growing concerns.

There is absolutely no argument that implementing any solution to reduce supplies to 7 days-or-less, be it manually or through an investment in technology, will come at a large cost to LTC pharmacies. The LTCPA study estimates the ongoing annual operational costs to provide shorter supplies at approximately $1.3 billion. However, the analysis simply assumes that the pharmacy's costs are directly proportional to the number of times a prescription is filled and does not take into account economies of scale or operational efficiencies gained through investments in technology (despite having billions invested in automation). More importantly, LTC facilities are extremely concerned about the additional burden and potential for errors with this manual approach to the problem. (For more on how 7-day-or-less dispensing, read my article in this month's McKnight's LTC News.) And, as we heard at the recent ASCP/NCPDP conference, LTC facilities simply do not care about the cost savings to Medicare Part D. Panelists Bob Warnock, Fred Wendt, Tony Hughes, and Frank Grosso, who represent four of the largest LTC facility chains in the U.S., made it very clear that LTC facility operators are less concerned about the cost of medication waste and far more concerned with:

• Medication availability
• Patient-safety
• Nursing time spent managing medications
• Nurse satisfaction
• Risk avoidance (F-tags)
• Diversion and accountability
• Drug Destruction Costs

During one of the Q/A sessions, Mr. Grosso pleaded with the pharmacy operators attending the conference, especially the more nimble independent pharmacies, to adopt technologies like remote dispensing that not only reduce medication waste but also meet the needs of their customers - the LTC facilities and their residents. Mr. Grosso called these pharmacies "agents of change," and gave them a call to action to revolutionize the way medications are delivered in LTC. Mr. Hughes and Mr. Wendt added that they believe their facilities need these solutions in order to adequately serve their residents and compete in today's environment. In fact, Mr. Warnock even said that LTC facilities are willing to pay for solutions that solves these problems.

Therefore, LTCPA should be helping pharmacies positioning themselves to compete in this new environment rather than advocating interim solutions that do not address the big picture. Instead, LTCPA should be fighting for solutions that improve patient-safety, eliminate diversion, reduce the environmental impacts AND cut costs to Medicare. LTCPA and the industry as a whole should lobby for increased compensation for more effective solutions, such as higher dispensing fees and technology grants to help subsidize investments in automation. Consider this... if Health and Human Services (HHS) invested half of LTCPA's estimated 10-year payback, or $625 million, to fund investments in technology that reduced waste, it would cover the capital cost to enable the industry to provide 7-day-or-less supplies for all medications to the entire nursing home population. This one-time investment would pay for a remote dispensing system for every large nursing home (125 beds or more) and a central fill dispensing system for every LTC pharmacy to service the rest. In comparison, the Health Resources & Services Administration (HRSA), the primary Federal agency for improving access to health care services, awarded $7.78 billion dollars in grants in fiscal year 2010. So, $625 million seems to be a reasonable investment to address the growing impact of medication waste in LTC.

Clearly, this is not an end-all-be-all solution. There are still ongoing operational costs, but as Mr. Warnock pointed out, LTC facilities are willing to share in these costs. Plus, LTC pharmacy operators gain operational efficiencies from the automation, reducing their overall dispensing costs compared to a manual process. Furthermore, if CMS requires the Part D Drug Plans to increase dispensing fees by a mere $1, the ongoing operational costs would easily be covered. For example, the cost to operate a remote dispensing system servicing a 125-bed nursing facility is approximately $2500/month, including service, support, and consumables. If the facility were to split this cost with the pharmacy, a $1 increase in dispensing fees would easily cover the remaining $1250/month. For smaller facilities being serviced by a central dispensing system, the operational costs are lower since one system can service multiple facilities. Therefore, this small increase, combined with an investment to fund the capital costs, would easily result in more profits for the pharmacy, while still providing savings to CMS and the PDP's. The end result is a solution that reduces waste, addresses the needs of LTC facilities and their residents, increases the bottom line for LTC pharmacies, and still saves Medicare millions (perhaps billions) of dollars.