Reference-Based Pricing: Pitfalls For a New Era

By: Jon Jablon, Esq

How many times have you read an article or listened to a sales pitch about how great reference-based pricing is? RBP can add a lot of value, and many of us have seen that first-hand. But that is not the purpose of this article. As a consultant in the self-funded industry, The Phia Group has lots of opportunities to review and assess reference-based pricing plans and various claims situations. We have seen plans experience a great deal of RBP success – but we have also seen many RBP failures.

As many of you reading this have found out the hard way, and often unexpectedly, there are certain ways that RBP can go poorly and cause harm to an employer’s health plan, employee base, or even business reputation.

RBP is a powerful payment methodology used by thousands of health plans around the country, but like so many cost-containment tools, a full understanding of the entire process and a strong implementation of the key elements are absolutely crucial to its success – and even seemingly inconsequential flaws in the process can prove to be problematic down the road. Let’s go through some of the biggest pitfalls.

Lack of Preparation: Poor Supporting SPD Language

Like so many things in the self-funded industry, a health plan’s rights with respect to RBP pricing are only as good as the plan’s language. A plan document should contain language to both allow the plan to pay claims as it sees fit, and to create arguments against balance-billing. A lack of adequate plan language makes the health plan especially vulnerable to appeals and lawsuits.

To provide a practical example, I was recently presented with a case where a health plan had neglected its Plan Document through the years. It was last restated in the late ‘90s, it had over 30 amendments, and it was just plain old confusing to read. That group utilized an RBP methodology, and yet there was a complete lack of payment limitation language, except for one sentence: “Expenses allowed at an amount the Supervisor deems reasonable.”

There are two main problems there: one is that the Supervisor was the TPA (so the first moral of this story is that TPAs should be wary of that type of unexpected liability), and the other is that this does not reference the 155% of Medicare at which rate the group’s RBP vendor had been pricing claims for six months.

What happened next? A large hospital system decided that it wanted to appeal, rather than jumping straight to balance-billing, and in the course of the appeal, the Plan Document was produced. I can just imagine the hospital’s attorney’s eyes filling with gigantic dollar signs when it saw that non-existent RBP language; the result is that while the vendor was repricing claims and raking in its fee, the Plan Document had not supported the program, and the Plan had not limited its exposure. Rather than face a lawsuit, the Plan had no choice but to pay the hospital’s demand in full… and hopefully amend its Plan Document language as soon as possible.

The seldom-referenced section 402(b)(4) of ERISA requires a health plan to “specify the basis on which payments are made to and from the plan.” There is precious little law to interpret exactly what that means, but it is the backbone of the sentiment that “your rights are only as good as your language,” and it seems safe to say that the particular provision within this health plan does not meet the relatively low standard of specifying how payments are made.

Poor Explanations: Inaccurate EOBs

There are two extremely common mistakes that health plans make when generating Explanations of Benefits with respect to RBP claims: (1) providing inaccurate or nonspecific remark codes, and (2) calling the amount over the Plan’s allowable amount a “discount.”

The former is a compliance problem; ERISA requires that EOBs contain not only an explanation of why the claim was priced as it was (according to the regulations at 29 CFR 2560-503.1, “The specific reason or reasons for the adverse determination”), but also a reference to the specific provision in the Plan Document that allows the denial (“Reference to the specific plan provisions on which the determination is based”).

The latter is a business issue; a “discount” is something that is allowed by the provider (typically in the contractual sense), whereas the excess or disallowed amount is, by definition, not agreed-upon in advance by the provider. Incorrectly using the term “discount” is problematic because not only is it incorrect, but it starts all parties out on the wrong foot – and working with a hospital to write off a bill is much more difficult when the provider goes into the conversation already thinking that the payor has tried to take advantage.

Incorrect Implementation: Applying RBP Payments to Contracted Claims

RBP results can be so good that some employers are tempted to apply RBP to contracted claims as well, the theory being that the contracted rate is still higher than what the plan deems reasonable, so the RBP savings are desirable for all claims, even contracted ones. While the contracted rate may well be just as arbitrary and overbilled as the original billed charges, it’s important to remember that contracts are legally-binding instruments, and contracted providers sometimes have powerful legal backing.

This is perhaps another topic for another article – suffice it to say that unless the applicable fee agreement allows it, the health plan’s chosen pricing cannot be applied to contracted claims without violating that agreement. It is a frighteningly-popular misconception within the self-funded industry that network or other fee agreements generally allow health plans to apply the contractual discount on top of the plan’s chosen edits or reductions (including Medicare rates).

Consider the example of a $50,000 claim subject to a mandatory contractual 10% discount, yielding a contractual payment rate of $45,000. The payor priced the claim at 150% of Medicare based on the Plan Document, which totaled $10,000. While the contractual rate would require that this claim be paid at $45,000, an alarming number of health plans and TPAs will apply that contractual 10% discount on top of the Medicare-based $10,000 (yielding payment of $9,000). Given the large discrepancy between payment of $9,000 and payment of $45,000, it is not difficult to assume that a contracted medical provider will push back, and hard.

Bad Negotiation Tactics: Not Having an End-Game

One of the hallmarks of a successful RBP program is patient protection, which can come in many forms – including direct contracts, case-by-case settlements, balance-bill indemnification, attorney representation, and other options, depending on the particular program used.

Settling claims is perhaps the simplest way of protecting patients; by eliminating balances via settlements, balance-billing is extinguished. Likewise, if a third party offers to indemnify the patient, then the patient is protected in that manner as well – and hiring litigation counsel on behalf of the patient can be an effective tool in combatting balance-billing or spurring settlement negotiations where a provider was otherwise hesitant to negotiate.

As has been proven time and time again, the state of the industry is such that medical providers are generally permitted to charge any amounts they choose. Charge masters are arbitrary yet still enforced by many courts, and providers are free to send patients to collections or file lawsuits when they have not received their full billed charges – and some providers feel even more inclined to do that if the provider has been paid at a percentage of the Medicare rate. Many medical providers treat a Medicare-based payment as a personal assault on the value of their treatment, and seek to abuse health plans even more because of that!

Some consider there to be two “separate” responsibilities to settle RBP claims or otherwise provide patients an avenue of protection from balance-billing – a social responsibility, and a legal responsibility. The social responsibility can be thought of in terms of the employer’s desire to provide its employees with sufficient coverage and a desirable program of health insurance; even though reference-based pricing and balance-billing are permitted by law, most employers utilizing this type of model are typically loathe to allow patients to be balance-billed, and desire to settle claims as part of the normal RBP process. For many employers, seeing a valued employee be sent to collections or become the defendant in a hospital’s lawsuit is the worst-case scenario.

There is, despite popular misconception, a legal responsibility to settle claims as well. A few years ago now, the Department of Labor came out with set 31 of its series on Frequently Asked Questions on the Affordable Care Act. While previous guidance provides that balance-billed amounts do not count toward the patient’s out-of-pocket limit, this FAQ indicates that that rule applies only when there is an “adequate network of providers” who will refrain from balance-billing. When there is no adequate network of providers, however, the guidance suggests that health plans must in fact pay for balance-billed amounts that exceed the patient’s out-of-pocket max.

Although the Department of Labor has neglected to provide additional guidance and make sure people understand what the FAQ guidance really means, the general opinion is that health plans must have a systematic program of settling balance-bills one way or another – and in fact most health plans utilizing RBP do have some system, whether direct contracts, a narrow network, or simply making sure they settle claims on the back-end. This is certainly a relevant factor for reference-based pricing, but not necessarily one that is prohibitive. This is an indication that RBP must evolve in order to remain compliant – and evidence that the threat of walking away the negotiation table may not be an option for many health plans.

Thinking That RBP is “All or Nothing”

When employers are sold on RBP by TPAs, brokers, or vendors, often those entities fall into the common sales trap of promoting only the positive aspects of RBP, without painting a full picture of some of the potential snares as well. As a result, since RBP results do tend to add value, many employers immediately jump to leaving their respective PPO networks and applying the RBP methodology to all claims. After all, more claims subject to RBP theoretically means more added value, right?

In practice, however, it often proves extremely beneficial to utilize some system of agreements as part of the overall RBP process. This ensures that employees have “safe harbors” to visit, promoting employee security, ease of use, and even compliance (see above!).

There are no pre-set requirements for what RBP is or is not; though many enter into it with a set of preconceived notions of how it should work, an RBP program can be tailored to suit a given health plan’s needs (subject to the vendor’s and TPA’s standard practices and capabilities, of course). Many health plans using RBP combine it with narrow networks, direct provider contracts, physician-only networks, or even primary networks (using RBP only for out-of-network claims).

Since RBP is meant only for non-contracted claims (see above, again!), RBP can in theory be used for any claims that the health plan has not previously agreed to pay at a certain rate.

On that note, the last point:

Not Realizing that RBP is Just U&C for the Modern Era!

When providers say “we expect payment at U&C” or similar things, it can be useful to take a step back and think about what RBP really is. At its core, RBP is just a way of pricing claims. It’s not a unique type of health plan, nor is it a way of changing the claims processes. It’s simply a way to determine how much money to pay on a given claim.

“Hang on,” you may be saying, “but isn’t that what Usual and Customary is?” Yes, it is! RBP can be conceptualized in many ways, but one of the most familiar is as a way of determining U&C. Just like RBP, “Usual and Customary” is not necessarily a pre-set term with a well-defined meaning; it is the way that a health plan determines what is payable. Interestingly, hospitals tend to suggest that “U&C” has to be defined as what other area providers charge for the same service, yet there is no support for that requirement. In fact, many health plans define “usual and customary” as an amount that hospitals commonly accept as payment for a given code. That can take into account private payors and even – gasp! – Medicare.

The employer determines the definitions within the Plan Document. If your plan defines its payable amount as U&C, and bases that amount on Medicare rates, then you can honestly say that your plan does pay U&C.

In conclusion: take care to ask your vendor – or potential vendor – lots of questions about their processes and how they manage these and other elements of their respective programs. With so many vendors in the industry, there can be lots of conflicting information, so make sure you’ve got your facts straight prior to signing on the dotted line.

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How Self-Insured Health Plans Are Helping Employers Compete In A Challenging Talent Marketplace

By: Philip Qualo, J.D.

Prior to joining The Phia Group, LLC, an experienced health care cost-containment company specializing in self-insured plans, my knowledge and experience with the self-insured industry could fit on the tip of my pinky. My previous work experience was exclusively in the fully-insured sector, where I quickly learned that uttering the words “self-insurance” was considered almost offensive. On a more personal level, I had been covered under various fully-insured health plans since my very first job after graduating law school. From the start, my experience with fully-insured plans jaded my perception of health benefits.  I eventually accepted that medical insurance was a necessary evil that I would have to learn to live with. Although my employers genuinely cared about the well-being of their employees, the ability to offer comprehensive medical benefits became increasingly difficult due to the monumental annual increases in the cost of fully-insured coverage. 

As employers who sponsor fully-insured health plans are generally limited to an “off the shelf” one size fits all plan options designed by their respective carriers, the limited ability to design benefits to meet the specific needs of their employees is an additional obstacle. As a fairly healthy individual who has never broken a bone or required surgery (knock on wood), I have spent most of my adult life stuck paying a premium for benefits that I rarely used. I viewed medical insurance as an unpleasant necessity, expensive but necessary just in case I was hit by a bus. This was especially the case when I experienced the dreaded fully-insured high deductible health plan. Although high deductible plans have become a popular compromise for employers to keep healthcare premiums at an affordable rate, as a low claims plan participant I struggled with the fact that I was not only paying a high premium, but also paying out of pocket for occasional provider visits and generic medications from my own hard-earned money. Due to my infrequent need to seek medical services, in all my years covered by a high deductible health plan, I never reached my deductible amount – not once. So, in reality, I was paying for coverage that I never really used.  Unfortunately, the astronomical profits that fully-insured carriers were reporting at that time did not help to alleviate what I perceived as an unpleasant necessity.

Then I interviewed with The Phia Group, my current employment, who not only specializes in self-insured health plans, but practices what they preach by sponsoring their own self-insured health plan for their employees. Where most employers usually avoid describing their health benefits in the interview process, my experience interviewing with The Phia Group was complete the opposite, and opened my eyes to not only the beauty of self-insured health plans, but how it can be used as an effective recruiting tool. “Ummm… can you repeat that?”, I exclaimed, as my eyes widened in bewilderment. “Which part?”, the Talent Acquisition Specialist asked, “The part about no co-pay for generic medications, no co-pay if I choose to take part in the Direct Primary Care (“DPC”) program, or the list of  incentives that can actually result in extra cash in your pocket for helping the plan contain costs?” Needless to say, this was the first time ever, in my lengthy professional career that I ever considered healthcare benefits as a factor in making my decision to work for an employer. Since enrolling in our health plan over a year ago, my health plan contributions have been consistent and more affordable than they’ve ever been. Most importantly, my trauma from paying the full cost for health services under a fully-insured high deductible health plan had finally faded, as the total I have spent on healthcare since I joined The Phia Group has totaled $0. This is when I first realized how important offering and sponsoring a self-insured plan can be, as self-insurance can be  an employer’s “secret weapon” for marketability in an ever-increasing competitive market for top talent.

Why is There a Struggle to Find & Retain Top Talent?

In May 2019, the White House announced that the unemployment rate in United States had dropped to 3.6 percent—the lowest unemployment rate since December 1969, according to a Bureau of Labor Statistics’ (“BLS”) household survey. Although this was great news for our economy as a whole, a low unemployment rate can be a challenge for employers seeking to expand their workforce and attract and retain top talent. Although U.S. job growth has been consistently strong, a low unemployment rate indicates there are more jobs than there are job seekers.

Another challenge employers are currently facing is increasingly high turnover rates, or what is generally referred to as high “quit rates” meaning voluntary separations initiated by employees. According to the April 2019 Bureau of Labor Statistics Job Openings and Labor Turnover Survey Highlights, high quit rates are indicative of a robust job market. Therefore, the quit rate can serve as a measure of workers' willingness or ability to leave jobs. According to the survey, there were 3.5 million quits in the U.S. in April 2019. This number far exceeded the number of discharge or layoffs for April, which was estimated at 1.8 million. Employers who sponsor self-insured plans and who choose to use the services of Third Party Administrators (“TPAs”) have been found to save more money on their health plans per enrolled person than they would have with traditional insurance. This is because TPAs work to manage an employer’s self-insured plan based on the employer’s specifications instead of according to an insurance carrier’s policy.

The Recruiting & Retention Advantages for Employers Who Sponsor Self-Insured Health Plans 

Due to the limited pool of job seekers, and increasingly high quit rates, employers are reviewing their compensation packages, and more importantly, their benefit offerings, to determine what leverage they have to compete in this employee-centered job market.  In a 2017 survey conducted by the Society for Human Resource Managers (“SHRM”) on the strategic use of benefits, the results yielded that organizations that take a strategic approach to their benefits programs, by leveraging benefits to recruit and retain employees, are nearly twice as likely to have more satisfied employees and to report better business performance compared with organizations that are not strategic with their benefit programs. This survey  reveals that benefits are a key driver in recruitment and job satisfaction. If an employer’s offerings fail to meet employees’ health and financial demands, they risk losing top talent to organizations with more complete coverage options.

Employers who sponsor a self-insured health plan have a notable advantage over employers who offer fully-insured coverage, especially when it comes to adjusting their benefits to  attract top talent. In order too meet the unique needs of job seekers and candidates as well as current employees, self-insured health plans allow for more flexibility and control over the terms of a plan. Employers have the opportunity to work directly with their service providers to customize their benefits to fit their needs and adjust them over time as needed. More importantly, plan sponsors have the ability to incorporate cost-containment incentives for their employees that allows the employer to not only save money, but also use those savings to enhance their plan offerings and offer them at a low cost. On the other hand, employers who offer fully-insured health plans are generally limited to the costly options available from the carriers within their respective states. In this context, budget conscious employers are usually forced to forego the more comprehensive health plan for the most affordable option, which usually has less than favorable coverage and results in employee dissatisfaction.

Bottom Line

According to a survey conducted by America’s Health Insurance Plan, 56 percent of U.S. adults with employer-sponsored health benefits said that whether or not they like their health coverage is a key factor in deciding to stay at their current job. In addition, the survey found that 46 percent of U.S. adults said health insurance was either the deciding factor or a positive influence in choosing their current job.

For employers who offer self-insured health coverage, the ability to design and modify their plans and enhance savings can be a valuable resource to attract top talent in this expanding job market. In sum, communicating the value of self-insured health benefits to job-seekers, potential job candidates, and existing employees, can be an employer’s secret weapon in competing for talent in this job market as well as employee retention.

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Big Pharma Facing Big Losses Tied To Opioid Epidemic Fallout

By: Sean Donnelly, Esq

Background

In 2017, a total of 70,237 people in the United States died from a drug overdose.  A staggering 67.8% of those deaths involved the use of opioids, a startling escalation that has been classified as a national epidemic.  Deaths attributed to synthetic opioids have become increasingly prevalent, accounting for 59.8% of all opioid overdose deaths.

Every day, an average of 46 people in the United States die from overdoses specifically involving prescription opioids.  The highest prescription opioid-involved death rates in 2017 were in West Virginia, Maryland, Kentucky and Utah¹.  According to the National Institute on Drug Abuse, drug overdose deaths involving opioids that were prescribed rose from 3,442 in 1999 to 17,029 in 2017².

In particular, oxycodone (such as OxyContin®), hydrocodone (such as Vicodin®), methadone, and fentanyl have been identified as the most common drugs associated with prescription opioid overdose deaths³.  Fentanyl, a synthetic opioid used to treat severe pain, is one of the chief agents being linked to the recent rash of drug overdose deaths.  In 2011, Fentanyl was identified as being the cause of 1,663 deaths; in 2016, that figure surged to 18,335 deaths⁴.  Natural and semi-synthetic opioids, a category that includes oxycodone and hydrocodone, accounted for 14,495 deaths in the United States in 2017⁵.  On a molecular level, oxycodone is nearly identical to heroin⁶.   

States Fight Back

Massachusetts

In the last decade, more than 11,000 people died from opioid-related overdoses in Massachusetts alone⁷.  Massachusetts patients who were prescribed opioids for more than one year were 51 times more likely to die of an opioid-related overdose⁸.  The Attorney General for Massachusetts, Maura Healey, alleged in a recent lawsuit⁹ against Purdue Pharma that the pharmaceutical giant possessed actual knowledge that its prescription opioid OxyContin was leading to overdose deaths.  Since 2009, in Massachusetts alone, 671 people who filled prescriptions for opioids manufactured by Purdue ultimately died from an opioid-related overdose¹⁰.  Yet, Healey claims that the company turned a blind eye towards the evidence of OxyContin’s addictive qualities and instead engaged in a large-scale sales blitz in Massachusetts to push sales of the prescription drug while deceiving doctors and patients.  Pleadings filed by Healey assert that Purdue’s OxyContin offensive included threatening to fire sales reps whose physician targets failed to write sufficient opioid prescriptions, advocating that the powerful drug be used to treat elderly patients with arthritis, and obscuring the risk of addiction in its marketing materials. 

Healey’s case focuses on Purdue’s deceptive practices, which allegedly included making misleading claims in order to push more patients onto its opioids at higher doses and for longer amounts of time, while simultaneously diverting patients away from safer alternatives¹¹.  Additional counts charge Purdue with creating a public nuisance of addiction, illness, and death and interfering with the public health by engaging in deceptive marketing practices that fostered a dangerous epidemic of opioid addiction in the state¹².  Further, Healey contends that Purdue acted negligently and recklessly with regard to the known risks of its drugs¹³, including by intentionally targeting high-prescribing doctors and rewarding them with gifts and money in exchange for them prescribing more Purdue opioids¹⁴, even when Purdue knew that its opioids were being misused and harming patients.  In one instance, Purdue’s governing board had allegedly been warned by staff that two Massachusetts doctors had prescribed opioids inappropriately, but it failed to notify medical licensing officials.  Purdue made more than $823,000 off those two doctors alone in just two yearsⁱ.

In March, Purdue’s attorneys filed a second motion to dismiss the case that labeled Healey’s allegations as “oversimplified scapegoating,” countering that the company neither created nor caused the opioid epidemic in Massachusetts¹⁵.  Instead, Purdue made the case that unlawful opioids like heroin and illicitly-produced fentanyl were the root cause of the great majority of opioid-related overdose deaths in Massachusetts¹⁶.  Accordingly, Purdue claimed that its FDA-approved OxyContin could not, as a matter of law, be considered the proximate or but-for “cause” of the state’s opioid crisis¹⁷.  The Massachusetts Attorney General’s Office is currently opposing Purdue’s motion.

Oklahoma

Oklahoma ranked as the leading state in the nation in terms of amount of opioids distributed per adult resident in 2016¹⁸.  In 2018, nearly fifty percent of drug overdose deaths in Oklahoma were caused by pharmaceutical drugs.  In that same year, of the more than 3,000 Oklahoma residents who were admitted to a hospital for a non-fatal overdose, eighty percent of those overdoses were due to prescription opioid medications¹⁹.  At the epicenter of this epidemic, Purdue Pharma was again in the crosshairs of a state lawsuit centered on opioid addiction.  The case brought by Oklahoma, originally filed in June 2017 by the Oklahoma Attorney General’s Office, named opioid manufacturers Purdue Pharma, Johnson & Johnson, and Teva Pharmaceuticals as defendants.  Rather than face a televised trial, Purdue in this instance elected to settle with the state to the tune of $270 million.  The settlement funds will be used to establish an almost $200 million endowment at the Oklahoma State University’s Center for Wellness and Recovery for the purpose of addiction treatment and research.  More than $100 million of the settlement proceeds will be used to fund a new addiction treatment and research center at Oklahoma State University.  $20 million of that amount will be earmarked for addiction treatment medicines.  Another $12.5 million in settlement funds will be dedicated to use by cities and counties to help fight the opioid epidemic.  In late May, Teva Pharmaceuticals reached its own $85 million settlement with the state.  The case against the remaining defendant, Johnson & Johnson, is moving forward with a bench trial that began on May 28^th. 

The complaint filed by the Oklahoma Attorney General²⁰, Mike Hunter, revealed that Purdue’s OxyContin sales skyrocketed from $48 million in 1996 to $3 billion in 2009²¹.  Hunter alleged that Purdue misrepresented the risks of opioid addition in its marketing materials and promoted unproven benefits in an effort to boost sales.  According to the complaint, Purdue caused “catastrophic damage” in Oklahoma by engaging in a false and deceptive marketing campaign that deluded both doctors and patients into thinking Purdue’s opioids were actually less harmful than had originally been warned by the medical community²².  Specifically, Hunter claims that Purdue falsely downplayed the risk of addiction associated with OxyContin and erroneously maintained that scientific studies had supported the prescription drug’s low risk of addiction²³.  One Purdue sales manager is quoted in the complaint as being trained to say that OxyContain was “non-habit forming,” going so far as to admit he was instructed “to say things like [OxyContin] is ‘virtually’ non-addicting…It’s not right, but that’s what they told us to say.”²⁴  The complaint also alleged that Purdue misrepresented the benefits of its opioids, including by falsely promoting that OxyContin had been studied for use with arthritis and recommending that it was effective in treating chronic non-cancer related pain²⁵.  Abbe Gluck, a professor at Yale Law School, theorized that Purdue’s decision to settle the case was largely driven by its apprehension that these allegations by the state would be “publically aired against it during a televised trial,” thereby risking “exposure to what could have been an astronomical jury verdict.”²⁶       

New York

For the first time since the onset of the opioid crisis, criminal charges have been levied against the individual executives running a drug distribution company.  The United States Attorney’s Office for the Southern District of New York (USAO), in cooperation with the New York Division of the U.S. Drug Enforcement Administration (DEA), announced in late April that criminal charges were filed against two executives of Rochester Drug Co-Operative, Inc.  Rochester, which is one of the largest wholesale pharmaceutical distributors in the United States, was accused of unlawfully distributing both oxycodone and fentanyl and conspiring to defraud the DEA.  Most notably, the company’s former chief executive officer and former chief compliance officer were both individually charged with the illegal distribution of controlled substances, a felony offense.  For its part, Rochester admitted culpability for the unlawful distribution and agreed to pay a $20 million fine and allow for future oversight of it operations by an independent monitor.  If Rochester adheres to the government’s terms over the next five years, the USAO has agreed to dismiss the charges against the company.  The press release from the USAO underscored that the unprecedented charges “should send shock waves throughout the pharmaceutical industry reminding them of their role as gatekeepers of prescription medication.”²⁷ 

With respect to the individual executives, the USAO alleged that they conspired to distribute oxycodone and fentanyl outside of the scope of professional practice and not for a legitimate medical purpose²⁸.  The indictment alleges that they willfully failed to report suspicious orders of controlled substances to the DEA and likewise failed to advise the DEA that Rochester’s customers were diverting the controlled substances for illegitimate use²⁹.  In particular, over an approximately five-year period, Rochester received 412 orders of fentanyl and 2,530 orders of oxycodone from its pharmacy customers that the company designated as “suspicious.”³⁰  Of those almost 3,000 orders that Rochester’s internal compliance team red-flagged, the former executives only reported four total orders to the DEA at the direction of Rochester’s former CEO³¹.  One member of Rochester’s compliance team explicitly warned the CEO and other executives that this practice could place the company in the DEA’s “cross-hairs…because of [its] willful blindness and deliberate ignorance.”³²  The former executives were also cited with having lied to the DEA about conducting due diligence on new pharmacy customers when no proper review was ever performed³³.  These customers were ultimately supplied with opioids from Rochester despite the company and its executives allegedly knowing that the drugs were in turn being sold and used illicitly³⁴.  Laurence Doud, the former CEO, was charged with one count of conspiracy to distribute controlled substances, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years, and one count of conspiracy to defraud the United States, which carries a maximum term of 5 years.  William Pietruszewski, the former Chief Compliance Officer, pled guilty in April to charges of conspiracy to distribute controlled substances, conspiracy to defraud the United States, and failing to file suspicious order reports with the DEA.                         

Proactive Options for Self-Funded Plans

Plan participants that misuse or intentionally abuse prescription opioids are more likely to incur high-dollar medical charges, whether in the form of emergency room visits, lengthy inpatient hospital stays, or recurrent physician visits.  Statistics provided by the Centers for Disease Control and Prevention indicate that over 1,000 people per day receive emergency medical services as a result of misusing prescription opioids³⁵.  In 2014, there were over 1.27 million emergency room visits and hospital inpatient stays for opioid-related issues, which represented a 99% increase for emergency room treatment and 64% increase for inpatient care from just 2005³⁶.  These increased emergency room visits, extended hospitalizations, and even a rise in workers’ compensation claims stemming from opioid addiction are putting a considerable financial strain on employers and the plans they sponsor.  Opioid abuse can cost an employer-sponsored plan an additional $10,000 to $20,000 in annual excess costs per patient³⁷.  Almost one-third of prescription painkillers covered by employer-sponsored plans are abused³⁸.  Fortunately, there are a number of options available to self-funded plans to combat the epidemic and mitigate the rising costs associated with opioid abuse:

1. Plan Design – Employers can customize their plans to discourage opioid abuse and instead incentivize participants to utilize pain management alternatives, such as acupuncture, chiropractic care, physical and behavioral therapy and heat-focused massage. 
2. Insist on Compliance with CDC and FDA Guidelines – Employer-sponsored plans should confirm whether the providers in their networks are properly following opioid prescription guidelines established by the Centers for Disease Control and Prevention (CDC).  The CDC guidelines were established as a baseline for providers to follow to better ensure that opioids are prescribed safely and appropriately in order to minimize the chances of abuse or misuse.  Additionally, plans should take steps to make sure their participants are aware of, and diligently follow, the Food and Drug Administration’s (FDA) guidelines that instruct patients on how to properly discard surplus opioids before they can be accessed by other household members who do not have a prescription.     
3. Establish a Limit – CDC studies have revealed that the likelihood of a patient becoming addicted to opioids spikes on day four of use.  Consequently, Plans may want to consider placing a three-day limit on the use of opioid prescriptions for initial pain treatment³⁹.  Plans should work directly with their utilization management vendor and pharmacy benefit manager to establish strict dosage caps and dispensation/refill limits.     
4. Plan Participant Education – Employers need to take proactive steps to ensure that their employees are fully-informed of the dangers of opioid addiction and misuse.  Group discussions and annual meetings are useful forums for discussing the dangers of opioid side effects, recognizing the symptoms of painkiller abuse, and identifying helpful resources available to employees such as substance abuse hotlines.
5. Identify Vulnerable Participants – Plans should analyze their prescription drug data to identify plan participants with a history of excessive prescription drug use who may be more prone to abusing opioids.  Plans should then work with their vendors and administrators to preemptively reach out to providers and pharmacists in order to steer susceptible participants towards pain management alternatives, establish prescription limitations, and make such participants aware of assistance networks and other resources at their disposal to help them through substance abuse issues.