SERVICE AIMS TO REINVENT THIRD-PARTY REMITTANCE

JANICE ZOELLER

NEW YORK -- A new service to be launched later this month could revolutionize the way third-party plan claims are processed. It also has the potential to strengthen pharmacy's hand in dealing with third-party plans.

The Rapid RxEmit program operated by The Pharmacy Fund here is, at its heart, a financial service in which pharmacies sign over their third-party plan receivables at a discount of between 1% and 2% in exchange for immediate cash.

As an added incentive for supermarket pharmacies, members of Super Net, the pharmacy network operated by supermarket retailers, are being offered a reduced discount rate that will reflect how many Super Net members join. The offer is set to expire around July 30, about a month after the final testing phase of Rapid RxEmit is expected to conclude.

The Pharmacy Fund purchases approved, on-line adjudicated third-party claims, with financing provided through the New York investment banking firm of Smith Barney Shearson and banking services through Bankers Trust, New York. Pharmacies receive payment in their bank accounts the next day, minus a credit card-like discount that The Pharmacy Fund charges on each claim it purchases. Claims are processed through a switch operated by National Data Corp., Atlanta.

If at least 3,900 Super Net members join, or about 60% of total membership, the discount rate to all will be 1.25%, compared with a rate of 1.9% available to most supermarket chains.

The Rapid RxEmit service is currently being tested at two sites: Save Mart Supermarkets, Modesto, Calif., which operates 25 pharmacies inside its 95 food stores; and at Harlan Medicine Cabinet, with two independent pharmacies on Staten Island, N.Y.

"We've found the service to be very useful," said Terry Cater, director of pharmacy at Save Mart, who expects to purchase the service. "We've already saved 20% in switching charges. If the beta test proves out 100%, and we have every reason to think it will, then as far as I'm concerned, we're going with it.

"It potentially will lift a big weight off my shoulders," said Cater. "The turnaround [on receiving funds] is 24 hours. I'll know that every claim that hits that switch I'm going to get paid 100% for. We may also be able to save money in operations." Cater explained that in the test The Pharmacy Fund picked up discrepancies in third-party plan claims transmitted by the stores to the NDC switch. One claim had been submitted and switched three times, which would have alerted the chain to expect three payments.

There's also the issue of gaining back some control from managed care, said Cater. "This service can help pharmacies police the third-party payers. No one has ever done that before."

"From a technological standpoint, they are capable of handling all they are encountering," said Bert Lee, Save Mart's pharmacy systems coordinator, who has been testing the system with The Pharmacy Fund for the last year. "It's a start-up operation, but they have accomplished a lot," he said.

"I've been impressed with the backbone, intent and financing of Rapid RxEmit to make sure the organization is set up properly," said Lee. "They are constantly monitoring the system. It's a very sound program. Their relationships with NDC and Banker's Trust are solid."

Roger Malerba, the independent pharmacy owner, is also favorably impressed with the Rapid RxEmit system.

"We don't have a large reconciliation department. Anything below a certain dollar amount, we figure it's not worth chasing," said Malerba. "But with Rapid RxEmit, we don't lose anything. If the processor changes the amount they will reimburse, Pharmacy Fund goes after the payment." Although the cost of the service to the independent is 2%, "it's probably less than most pharmacies are striking anyway," he said.

Of particular interest to Malerba is the potential of Rapid RxEmit to improve cash flow. "If Rapid RxEmit buys the claim and I get paid for it before I have to pay my wholesaler, I'll dispense a prescription for 10,000 Zantac to a patient with a third-party plan, and I won't worry as long as the claim adjudicates," said Malerba.

Another benefit is The Pharmacy Fund's credit ratings of the various third-party plan administrators and payers, including more than 100 payers offering 3,500 plans.

"If they report they are not going to accept claims from a specific processor," said Cater, "that tells me maybe I shouldn't be doing business with that company."

"As an industry, pharmacies lend third-party plans over $1.5 billion, with no idea of their credit worthiness," said Jeff Greene, president of The Pharmacy Fund.

To underscore the problem, The Pharmacy Fund recently sponsored a contest asking supermarket pharmacy directors to estimate the average receivable dollar amount owed to a pharmacist by third-party payers on a given day, along with how many days it takes to collect from a third-party payer.

Jim Cordes, director of professional services at Schnuck Markets, St. Louis, was the contest winner. He correctly answered that $30,000 was the average dollar receivable owed to a pharmacy on a given day, and 35 days was the average amount of time it takes for a pharmacy to collect its money.

"The industry has done a pretty good job of coping, considering that no one in retail expected to have a receivable of this size," said Greene. However, he likened chains' current methods of handling third-party claims to fingers in a dike. Pharmacies don't have the systems to do the job, he said.

"Most pharmacy directors would say, 'We're doing a good job today,' " said Greene. "The question is, what will retailers do if third-party plans go from 50% of prescriptions to 80%?" Pharmacies are not looking to make a big capital expenditure, Greene said. "They are experiencing shrinking margins already."

With third-party plans issuing price changes weekly, most pharmacists have given up trying to keep track, said Greene. "We also found out that every payer has a unique payment schedule," he said. "If you don't know when the company is going to pay, how do you send a letter that payment is late? "

Many supermarket operators, though, view the Rapid RxEmit system as too expensive. Explained one observer, "Companies feel they are already doing these things. With margins on third-party plans dropping, it's hard to give up another 2%."

"We already have a department in place to handle that," said one pharmacy director in a Western state. However, he added that continued growth of third-party plans could lead the company to take another look at Rapid RxEmit.

"They don't know what it costs them," Greene responded. "We've yet to find any chain that has gone through a clear examination of the problem that hasn't come back and said, 'You're cheap!' Either they don't know they have a problem, or they don't want to admit it. Or they just don't know what to do about it. The only choice has been to build the type of system we have."

The Pharmacy Fund originally estimated that its system to track third-party payments would cost $3 million. Instead, it has cost $6 million. What has accounted for the difference is dealing with "lots of little anomalies," said Tom De Fazio, a Pharmacy Fund consultant. These anomalies include filing of duplicate claims, editing of old claims, repetition of prescription numbers and discrepancies that arise when computer lines go down while a claim is being filed.

"Everybody says they use NCPDP [National Council on Prescription Drug Programs] standards, but they use them differently," said Greene.

One of the problems The Pharmacy Fund has had in marketing the service is that, because going with Rapid RxEmit involves selling a company asset, the decision is often made by the chief financial officer or controller of a supermarket. Compounding the difficulty is that to consider paying for such a service almost requires the supermarket pharmacy director to acknowledge that the business of tracking third-party plan claims has spiraled out of control or soon will.

"It's true that larger companies have dedicated departments and feel that they are controlling the business," said Greene. "If you talk to someone whose job it is to be in charge of third-party business inside a large chain, you don't expect that person to say, 'I'm not doing my job.'

"Two chief financial officers of major supermarket chains said to us in the last week, 'Would you really expect my guy in charge of third-party administration to tell you, as an outsider, that he's not doing his job well? He won't tell me that either.'

"We only found one supermarket chain that runs the price offered back from a plan against his real contract price, and that chain is a month behind in loading in the changes," said Greene.

"There is awareness in our industry that something's amiss," said Cater. "Most companies are either overreporting sales in hopes of doing more than enough to get paid, in which case you still have to take a chargeback, or a pharmacy retailer is actually losing money because it's not getting paid for legitimate claims."

Both Greene and De Fazio hail from the banking industry. They said they weren't prepared for much of what they have observed in how third-party plans are handled, including that the contracts of third-party administrators allow for commingling of funds collected from plan sponsors.

Normally, "if you provide services to somebody under a contract, after a period of time you send a bill," explained Greene. "'This is what you owe, pay me.' In this industry, the pharmacy provides the service, but then the third-party plans tell the pharmacy what they think they owe. It's up to the pharmacy to show that the amount paid is wrong."

In addition, said De Fazio, pharmacists often don't know "who is on the other side of the table," who the ultimate plan payers or sponsors are because plan administrators consider this competitive information.

Greene said that while pharmacists assume most plan sponsors are insurance companies, the biggest number are actually health maintenance organizations, plus an increasing number of self-insured companies.

The net result is that risk for pharmacies is increasing, said De Fazio, noting that unlike insurance companies, self-insured companies, payers and health maintenance organizations are not regulated.

Greene declined to comment on whether third-party payers are operating in good faith, given all the complexities in this industry. However, he did say that "the government continues to gather testimony that suggests that some of the insurers don't pay their bills as efficiently, timely and accurately as they might.

"On the other side," Greene said, "if someone is cheating the pharmacist today and thinks that's an essential ingredient of the company's profit, he's not going to be very happy with us. We will hold companies accountable to the letter of the contract signed. No better, no worse."

"I would challenge anybody to do what The Pharmacy Fund is doing as efficiently," said Cater. "We all know we have claims that are slipping through the cracks. If anybody out there says they know exactly how much they are losing, I would have to say they may be overconfident."