DAY SIXTY-ONE: Saving TennCare Safely 

Strategies That Reduce Costs By Improving Patient Care

As the state attempts to reduce costs in the TennCare program, it is critical that it do so safely. That means changes must not endanger the health of patients and must not risk creating higher costs for the state. 

There is no safe way to save costs without clinically sound management. It is especially important to focus on the management of care for the sickest patients, since failure to do so translates immediately into poorer health and increased costs. Shortchanging the quality of care, or denying medically necessary services, costs more in the long run. Here are cost-saving alternatives that will save the state money AND improve the quality and efficiency of care. 

There are five primary strategies:

1. Retrospective drug use review (DUR) 
Pharmacy is the largest single item of cost in the TennCare budget, and much of that cost is driven by utilization. A federal law enacted in 1990 requires all state TennCare programs to profile providers and patients to identify inappropriate use of prescription drugs. Those who prescribe too many drugs or drugs that are needlessly expensive can be counseled. Those who abuse the program can be identified and sanctioned. Retrospective drug use review (DUR) targets problem doctors without interfering with the medically appropriate use of medications, and without hassling those doctors who follow sound prescribing practice.¹ 

More than a decade after enactment of the federal law, Tennessee has never implemented an effective DUR program.² Without such a program, TennCare prescription drug use remains much higher than in TennCare programs in other states. Excessive prescription drug utilization is a problem of long standing that is not limited to TennCare, but affects all insurance plans in Tennessee.³ The overuse of prescription drugs in Tennessee has serious public health implications for everyone. The over prescribing of antibiotics has led to the development of drug-resistant bacteria in parts of the state. Therefore, an effective retrospective DUR program in TennCare can not only save substantial amounts of money in TennCare itself, but will yield benefits for the population as a whole by bringing prescribing patterns for all patients into line with national practice standards. 

The very fact that Tennessee’s drug use is so much higher than other states’ points to the potential for substantial savings through DUR. Excess utilization represents “low hanging fruit” that should be pursued before imposition of arbitrary limits that impede access to necessary drugs, without reforming the underlying causes of overuse. 

2. Disease Management 
The sickest 15% of TennCare enrollees account for 75% of costs; the sickest 4% incurs 43% of costs.⁴ Because so much of TennCare’s budget is spent on a relatively small population of chronically ill patients with multiple diagnoses, intensive clinical management of those high cost patients offers a major source of potential savings. The Governor has long advocated a program of disease management as one of the basic elements of TennCare reform, and McKinsey & Company reported in February that disease management could provide significant savings. Priority should be given to focusing on patients who have multiple chronic diagnoses ( for example, diabetes, hypertension, chronic obstructive pulmonary disease, etc.) 

Pending proposals assign a relatively low priority, however, to the establishment of an effective disease management program. In fact, the proposals would take TennCare in the opposite direction from managing disease. The burden of the proposed service limits and cost-sharing policies will fall most heavily on the very population who would most benefit from disease management. By creating barriers to needed care, the proposals would make it more difficult to manage their health in a cost-effective way. 

3. Preferred Drug List for Behavioral Health 
TennCare successfully launched a preferred drug list (PDL) several months ago. The PDL was compiled by a panel of medical experts and state officials who carefully weighed clinical efficacy and pharmaceutical company discounts to arrive at a list of medications that supports cost-effective medical practice. The PDL is expected to save $150 million this fiscal year and $250 million next fiscal year. 

The state prudently excluded behavioral health drugs from the PDL when it began, deciding that it was important to work the kinks out of the new program before extending it to vulnerable patients with mental illness. There are currently no controls on what behavioral health drugs can be prescribed, and costs have risen 35% since 2000. TennCare will spend $520 million, of which $180 million is state funds, on behavioral drugs in 2004. 

Adding behavioral health drugs to the PDL, using the same careful selection process that was used last year for medical drugs, would yield conservatively estimated in the range of $35 million in state funds.⁵ 

4. Multi-State Purchasing Pool 
Last year, TennCare briefly explored the possibility of joining five other states, led by Michigan, that were planning to buy drugs together. Such a purchasing pool would enable the states to aggregate their buying power, so that they could command larger discounts than any single state could obtain by itself. It appeared at that time, though, that the states would not be able to win federal approval for the plan. 

On April 22, 2004, the federal Centers for Medicare and TennCare Services (CMS) unexpectedly announced that it was giving the five states permission to purchase TennCare drugs together. First Health, Inc., which administers TennCare’s pharmacy benefits, is also the manager for the multi-state purchasing pool. The states that participate are each free to maintain their own PDL, which means that Tennessee would not have to give up its PDL to participate. This unanticipated development creates a new opportunity to increase the rebates that TennCare is already receiving through the PDL, by joining the multi-state purchasing pool. 

5. Payments to Managed Care Organizations 
This year TennCare will pay its managed care contractors $245 million, or nearly 5% of the $4.96 billion in health services which they administer. Those rates are relics of a past when the contractors were true HMOs that accepted financial risk. They are now only administrative services organizations (ASOs). They do not manage care. They pay claims and issue eligibility cards, which can be done for a fraction of present rates. In 1993, the last year before TennCare began, the Medicaid contractor that performed those functions received $8.5 million to administer $1.78 billion in claims, a rate of less than half of one percent. The state should not pay HMO prices for ASO service.

Footnotes:

1 See Center for Health Care Strategies, Clinical Pharmacy Management Initiative: Integrating Quality into Medicaid Cost Containment (April 2003), posted at http://www.chcs.org/usr_doc/quality_cost.pdf. By contrast, arbitrary limits and co-payments leave overuse by some patients (e.g., those using less than 6 Rx/month) untouched, while denying care to the sickest patients for whom the denied treatment is both necessary and cost-effective. Such limits therefore raise concerns about the affect on both patient safety and program costs. See S. Soumerai, “Benefits and Risks of Increasing Restrictions on Access to High Cost Drugs inMedicaid”, Health Affairs 23: 135-146 (Jan./Feb. 2004); Centers for Medicaid and Medicare Services, The Use of Quantity Limitations in State Medicaid Prescription Drug Programs, (Jan. 2002), posted at http://www.chcs.org/publications3960/publications_show.htm?doc_id=214935. 

2 See Tennessee Comptroller of the Treasury, TennCare Prescription Drug Costs (available at http://www.comptroller.state.tn.us/orea/reports/tenncaredrug1202.pdf) 

3 See BlueCross BlueShield of Tennessee, White Paper: Rx for Pharmacy Costs in Tennessee (August 2003), http://www.bcbst.com/about/affordability/docs/papers/TN_drug_cost.pdf) and Tennessee Comptroller of the Treasury, Prescription Drug Costs in Tennessee (November 2002). (available at http://www.comptroller.state.tn.us/orea/reports/tcdrugfinal.pdf) 

4 See McKinsey & Company, Achieving a Critical Mission in Difficult Times – Illustrative Strategic Options for TennCare, Part 2, p. 29 (Feb. 2004) These subgroups are generally chronically ill, with the same patients accounting for most of TennCare’s costs from one year to the next. This subgroup includes a core population of about 150,000 patients who have five or more chronic illnesses. 

5 The new TennCare reform proposals would deal with behavioral health drugs far more aggressively than through adding them to the PDL. The state would simply cover whichever drug is the cheapest, without the careful balancing of medical efficacy versus cost that goes into selection of drugs for inclusion in the PDL. The proposed approach is too narrow, because the cheapest behavioral health drug is not necessarily as effective as newer, more expensive drugs for the same condition. Taking short cuts on effectiveness of medication can cost more in terms of psychiatric hospitalization. See H. Huskamp, “Managing Psychotropic Drug Costs: Will Formularies Work?”, Health Affairs 22: 84-96 (Sept./Oct. 2003). 

http://www.tenncare.org/