Why 30-Day Pharmacy Payment Cycles Lower Costs and Prevent Fraud

The Role of PBMs in Pharmacy Payment Cycles: Consumer Access, Cost Savings, and Fraud Prevention Pharmacy Benefit Managers (PBMs) contract with more than 90 percent of pharmacies throughout the United States to give consumers convenient access to their prescription drug benefits PBM–pharmacy contracts typically allow pharmacies to collect and keep consumer copayments and give plan sponsors 30 days to reimburse pharmacies for remaining costs through their PBMs 30-day pharmacy payment cycles allow PBMs to efficiently batch and process millions of prescription claims from tens of thousands of pharmacies Government intervention to accelerate pharmacy payment cycles would increase prescription drug costs for consumers and payors Accelerated payment cycles would make it more difficult to detect and prevent pharmacy fraud

30-Days: The Medicare and Private-Sector Standard 30-day pharmacy payment cycle is standard for: Medicare Parts A & B Federal Employees Health Benefits Program (FEHBP) State employee health programs Nearly all private-sector health plans 30-day payments have been the standard for decades PBM industry has publicly pledged to abide by 30-day payment standard for Medicare Part D

PBMs: Meeting the 30-day Standard Pharmacy Claims Paid In Study 24 days Grant Thornton study funded by the independent pharmacy lobby 23 days PricewaterhouseCoopers 21-25 days CMS

30-Day Payment Cycles Necessary to Process Millions of Claims for Thousands of Pharmacies Through Multiple Entities Tens of thousands of independent pharmacies File millions of prescription claims annually Claims processed for plan sponsors by Pharmacy Benefit Managers (PBMs) Claims paid by plan sponsors including large employers, unions, health plans, and government programs Payments processed for independent pharmacies by Pharmacy Services Administrative Organizations (PSAOs)

Independent Pharmacy Claims Payment Requires Numerous Steps in 30 Days Pharmacy to PBM Tens of thousands of pharmacies file claims PBMs adjudicate individual claims Verify person is covered Verify drug is covered Verify copay PBMs audit individual claims for fraud PBMs sort and batch claims for payment by thousands of plan sponsors PBM to Plan PBMs send batched claims to plan sponsors for payment PBMs review longitudinal claims data to detect fraud Plan to PBM Plan sponsors send claims payment to PBMs PBMs continue audits and review of claims data to detect fraud PBM to PSAO PBMs send payment to PSAO Reconciliation PSAO to Pharmacy PSAO processes payments and credits individual pharmacies 6 6

“Prompt Pay” Mandate Doubles Administrative Complexity 7

Accelerated Pharmacy Payment Cycles Undermine Fraud Detection Typical Examples of Pharmacy Fraud Shorting number of pills Substituting generic for brand Early refills Pharmacist offering to buy back prescription drugs How PBMs Detect and Prevent Pharmacy Fraud Verify information submitted by pharmacies Investigate suspect claim patterns from specific pharmacies Audit paper prescriptions and pharmacy purchases According to the Coalition Against Insurance Fraud, “prompt pay” laws in California leave insurers little time to investigate suspicious claims With millions of claims filed each day, it’s impossible to manually review all of them so plans use a combination of high-tech and low- tech tools to help prioritize claims for manual review PBMs use complex algorithms to analyze information from multiple payment cycles to identify suspect billing patterns Combining a high-tech and low-tech approach improves the chances of preventing fraud

Fraud and Abuse Detection Is A Necessary Step Pharmacist Arrested in Fraudulent-Billing Case The owner of a pharmacy was arrested Friday on federal charges of fraudulently billing private insurance companies for more than $11 million worth of medications that were never prescribed nor dispensed… February 15, 2003 Just one pharmacy: Submitted $11 million in false claims Fraudulent prescriptions Not requested by the patients Not prescribed by the physician Not dispensed by the pharmacy Insurance companies paid $5 million of the false claims before the fraud was identified

Pharmacy Fraud Increases Medicaid Costs In 2006, the New York Attorney General uncovered a Medicaid pharmacy fraud ring in which physicians, patients and pharmacies collaborated to defraud the state of more than $22 million In 2006, the Texas grand jury indicted a pharmacy owner for felony offenses involving more than $5 million in alleged fraudulent Medicaid reimbursements for excessive prescription refills A 2007 report by the U.S. Department of Health and Human Services and The U.S. Department of Justice found numerous examples of pharmacy fraud, including a New York pharmacist who pled guilty to submitting $1.875 million in fraudulent claims to Medicaid and private health insurers

Medicare “Prompt Pay” Mandates Would Raise Costs According to a 2008 Study by PricewaterhouseCoopers: A 14-day “prompt pay” requirement in Part D would increase costs to the Medicare program and its beneficiaries by $3.3 to $7.8 billion over 2009-2018 period Cost to beneficiaries alone would increase by $1.3 to $3.1 billion over the 2009-2018 period if Part D mandated a 14-day pharmacy payment requirement

Lower-Priced Competition—NOT Payment Cycles— the Real Challenge for Independent Pharmacies

Conclusion: No Need to Change 30-Day Payments Pharmacies are being paid on time with great efficiency “Prompt pay” mandate would increase costs to Medicare and its beneficiaries by $3.3 to $7.8 billion over 10 years Accelerated payments would make it more difficult to prevent fraud Doctors and hospitals would also demand faster payments in Medicare A and B Lower-priced competition—not payment cycles— is the real challenge for independents