Developing a strategy to strengthen pharmacy reimbursement starts by understanding whether specific provider-administered drugs generate positive or negative margin for the health system. Many organizations currently lack visibility into drug margins because drug costs are overseen separately from the revenue generated by administering these drugs. Typically, pharmacy leaders have accountability for managing drug costs while finance leaders manage revenue.

To determine margin for any given drug, pharmacy and finance leaders must combine their data and collaborate to conduct a retrospective reimbursement analysis. Such an initiative requires reviewing detailed reimbursement claims to understand the type and volume of drugs dispensed, net acquisition cost, number of treatments, reimbursement by payer per dispensation, and other sources of revenue, such as patient assistance programs. Only then can they calculate average net revenue per treatment plan for each payer and drug.

This can be a labor-intensive process, and staffing is one of the common barriers to implementation. Often, teams initially focus on the 30-50 most expensive medications to maximize impact while minimizing time investment.

Effective teams must be able to combine pharmacy and finance knowledge in order to review claims data and financial records. Organizations with a hybrid pharmacy business team have an advantage at implementing a margin analysis initiative. Such a team may be situated under pharmacy or finance leadership, depending on the organization.

Results from the drug margin analysis may be used to negotiate both lower purchasing costs from manufacturers and higher reimbursement from payers.

Marshfield Clinic in Marshfield, WI found that when their acquisition cost for a medication is above the average sales price (ASP), which is used to calculate Medicare reimbursement, this may be an indicator that other health systems have secured a better price and there is room to negotiate with manufacturers. Pharmacy leaders caution that only drugs with multiple clinically equivalent alternatives are likely to be truly open for negotiation, however.

At Memorial Healthcare System in Hollywood, FL, leaders used their reimbursement analysis to negotiate disease-specific carve-outs for plans with payment limits. Pharmacy’s J-code level analysis uncovered thousands of unreimbursed dollars resulting from managed care payment caps on oncology patients. As a result, the health system had data to support negotiation to exclude oncology patients from payment caps for a major payer.

Conversely, results from a drug margin analysis may indicate that using alternate sites of care is necessary to ensure net positive reimbursement for a particular drug. Pharmacy must then help patients transition from hospital-based infusion to provider-based, freestanding or home infusion sites.

Proactively addressing payer denials is also critical to improving pharmacy reimbursement, especially in the current environment where payer policies change rapidly. Often, health system finance teams review only a small subset of drug reimbursement denials. This status quo means they miss critical trends and patterns that can help them catch denials earlier and improve processes that lower denial rates. Convening a multidisciplinary denials workgroup is a proven strategy for improving pharmacy denials management.

To achieve a comprehensive picture of pharmacy reimbursement, the team should include, at a minimum, representatives from pharmacy, finance, clinic/PA staff, and managed care. Each participant brings different expertise and access to needed data. For example, finance has access to denials data, PA staff have access to medical record documentation, pharmacy has drug-specific knowledge, and managed care has payer-specific knowledge.

Organizations that have successfully launched a denials workgroup report that senior leadership may be needed to assemble and launch the team. Once processes and protocols are in place, however, manager-level staff provide ongoing support. Organizations have also reported that an added benefit of denials workgroups is that it's often a first step toward increased collaboration between these diverse groups.

Denials workgroups typically meet monthly. Meeting agendas may include reviewing denial trends (often at the drug level), reporting on root cause analyses for past denials, discussing potential process changes to address factors leading to denials, and facilitating cross-stakeholder education on issues contributing to denials. In addition to the monthly meeting, teams may communicate via email throughout the month to troubleshoot urgent cases.

Reviewing trends at the drug level and conducting root cause analyses are especially critical as these steps enable the team to find and address issues much faster compared to using traditional denials management processes. For example, Asante, a health system serving southern Oregon, found that a health plan was still denying payment for a treatment even though the infusion center had switched patients to the plan’s preferred product. The workgroup’s analysis found that in addition to switching to the new drug, they also needed to complete new PAs for the impacted patients. They were able to remedy the situation quickly, before many patients had been impacted.

MU Health Care found that they were frequently denied reimbursement because of miscommunication within the health system around payer policy changes. They implemented a policy requiring PA staff to complete a new PA for every drug, regardless of whether they thought it had a PA, or not. Though this created more work for the PA team, it led to a significant reduction in denials.

Effective PA processes are essential to preventing costly denials and ensuring timely reimbursement for high-cost drugs. Historically, provider clinics and infusion centers have independently managed PAs for provider-administered medications. However, providers and clinic staff report growing frustration with these processes as PA requirements increase in rigor and frequency. Clinic staff often struggle to ensure timely PA completion amidst their other daily tasks, and high denial rates indicate that these teams may be ill-equipped to manage PAs for provider-administered medications. Some health systems have shifted responsibility for medication-related PAs to pharmacy staff with experience in procedural PAs. Leading health systems have seen PA improvements from implementing a system-wide, pharmacy-led prior authorization program for provider-administered medications.

Pharmacy-led PA programs ensure staff have the medication-related expertise necessary to achieve high PA approval rates. According to the pharmacy benefits manager Magellan Health, the most common payer criteria for determining whether to approve use of a given medication include appropriate: indication, dose, duration, labs and results, and previous therapies used. PA staff with knowledge of medications and medication use are much better positioned to submit correct information the first time to ensure efficient, timely PA approval. Building pharmacy expertise into PA processes can lead to more accurate requests, eliminate wasted time, improve cash flow, and reduce denials.