Lonny Wilson has quite a bit of experience working with third-party payers and claims data on behalf of independent pharmacy. Wilson is both a retail pharmacy owner and a practitioner of pharmacy and CEO of PPOk and Rx Linc. In this interview with ComputerTalk Senior Editor Will Lockwood, Wilson talks about the current challenges pharmacies face negotiating contracts and preventing and responding to audits, and the opportunities available in better managing pharmacy claims data.

CT: Lonny, tell us a little bit about yourself and give us a little background on PPOk and Rx Linc.

Wilson: I am a retail pharmacy owner and I continue to own and operate three stores. Back in the 1980s, when it became known that HMOs were going to use limited provider networks, we started PPOk up as a nonprofit pharmacy services administration organization [PSAO]. This was owned by independent community pharmacies. We bid on providing network services to an HMO, won that bid, and went on from there. So we started out in the network services arena and subsequently got involved in capitated arrangements with HMOs and insurance plans in the late 1980s. We survived that and developed buying-group services next. Then we started our own regional PBM. We expanded into technology offerings, starting around 1998 when we developed our internal switch program, Rx Linc. From that, as we were trying to determine services that would help independent community pharmacies survive in today's market, we've really become a data management and data analytics company.

CT: OK. Let's talk about network management first. What are the current challenges for pharmacies as they review the contracts offered by third-party payers?

Wilson: The two main things we hear industry wide are audits and eroding MAC values. Certainly we've concentrated our services around trying to address these two major issues right now. The overriding factor is that reimbursement from third-party payers makes up more than 95% of the independent pharmacist's total business and the individual pharmacist does not have time or the expertise to manage these contracts. So what we try to do is provide a back office, with a team that has more than 60 years of combined experience reviewing, negotiating, and executing third-party contracts. We use legal counsel on top of that. Whether it's a single store or 25, we find that the owner does not have the time, the expertise, or the staff to manage those contracts.

But reimbursement is just one contract provision that you have to address. You have to address price update provisions, MAC definitions and performances, audit processes, and the definition of a recoverable claim. I think all these provisions are more important now than they ever have been.

CT: You mention audits. What's driving audits, and what risk do they pose to a pharmacy?

Wilson: The big drivers for audits are Medicare Part D and fraud, waste, and abuse pushed down by CMS to the plans. So we need to address the topic from the top down, as well as at the PBM level. Several states have been successful in getting legislation passed addressing audit provisions. That's so very important, and we need to continue to push this through NCPA [the National Community Pharmacists Association], and continue to work on this. Audits represent newfound money for the plans, and I think that at least some of them are using questionable tactics to recover money. We've been very focused on representing our stores in the audit process, and we've pushed back very aggressively against these recoveries.

CT: Are there more audits now then in years past?

Wilson: Yes, absolutely. CMS guidelines are that every plan must audit every provider once every three years. We're certainly seeing an even higher frequency than that. And many of the PBMs will outsource auditing. So we're seeing a trend that, if a pharmacy has a situation of nondocumentation, for example, and they are audited by this outsourced company for one particular PBM, then we're seeing some evidence to show that the same pharmacy is targeted by the other PBMs as a result of using the same outsourced auditor.

CT: What should pharmacies be doing to prevent recoupment from audits?

Wilson: Here at PPOk, we've built a post-adjudication educational program where we identify all the claims that are potential audit targets and suggest maintenance for those claims. The fact is, the auditor can walk into almost any pharmacy and find something somewhere. We help fight all the administrative errors that an audit can turn up, and we do this through the review process. Keep in mind that the auditors are being paid with a percentage of their recoveries, so they have an incentive to identify as many recoverable claims as possible.

CT: What about keeping claims from being audit targets?

Wilson: You need really good controls on your claims process and on your data. You have to do things differently today than you did before Part D and Medicare fraud, waste, and abuse. And you have to be very aware of what each PBM considers a targetable claim. This is because the PBM's audit provisions generally exceed what state and federal laws require. For example, in Oklahoma, if there are no refills on a hard copy, you can call the doctor for authorization, document this in your computer, and that's fine for state pharmacy practice laws. But under certain audit provisions, PBMs do not allow this. They say the authorization must be documented on the hard copy, and they'll recover payments when this isn't the case. So what you have to do is be very consistent in following these stricter requirements.

CT: It sounds like it is critical to have help tracking all these different requirements.

Wilson: It has been enlightening to work with some people who are peers in the pharmacy community and who feel they are doing a good job keeping up with PBM requirements. They are doing a good job in many areas, but when we do a post-adjudication review of their claims and we identify those that are potential audit targets, everyone is amazed at how many have fallen through the cracks. For example, the day's supply calculation was incorrect, or the sliding scale insulin dosage wasn't documented properly, or the inhaler day's supply was wrong. Ophthalmic drops are an issue. It has been very enlightening for people to see where all the holes are, even when they are doing a pretty good job overall.

CT: OK. So we accept the fact that a pharmacy is going to have claims with issues. You mentioned post-adjudication review and correction. How does this work?

Wilson: First we identify claims that are possible audit targets - and we do this based on a comprehensive database of audited claims that lets us see into the logic the auditors use - and then take corrective action by correcting the issues and resubmitting the claims. The results speak for themselves. We have data that show that auditors were recovering more than 97% of their findings in pharmacies before our services came into play. After education and our assistance in appeal, we brought this down to just over 5% recovery. With the pre-adjudication review and audit appeal services, we can get this down to just over 2% recovery.

CT: So there really are ways for a pharmacy to minimize audit risk. Let's move onto another topic you mentioned, MAC pricing. Give us the background.

Wilson: The issue is that the PBM industry is mature, and they're competing against one another. The brokers and the plans are using this and driving the competition for PBMs to guarantee higher generic equivalent rates. The rates that plans are asking to be guaranteed are reaching the 75%-plus area. And of course, PBMs are driving profitability by spread pricing. MAC isn't clearly defined in contracts with clear limitations. They continue to lower the MAC price because they can. It has become quite a problem, and the incentive to dispense generics has gone away.

CT: This doesn't sound like a good trend. Generics are generally looked at as a big cost saver, and they're supposed to be good for pharmacy too, since they've traditionally offered better margins.

Wilson: Well, we're finding that there's lower profitability in generics now than there is in brand names. We're getting to the point where we can't continue to fill these prescriptions at the MAC erosion rates we're seeing. We're trying to negotiate MAC cap provisions in contact language and to specify what PBMs will do in cases where a pharmacy's invoice price is less than what the MAC value is. It has been a challenging process.

Benefit design drives generic utilization, with lower co-pays or a generic mandate. Generic utilization used to be in the 50% or 60% range. Now generic availability and use rates are in the high 70s, and we project that to be in the high 80s in the next two years. In the near future, pharmacists will be dispensing primarily generics. If PBMs continue to erode the MAC price, that's not going to be a viable economic model for community pharmacies to stay in business. So we have to address the MAC values to get to a fair and reasonable MAC, and devise contract limitations that hold PBMs to the fire so that they can't continue to erode the MAC below pharmacy cost.

CT: OK. Let's wrap up by talking a little about Rx Linc and switching services. This is probably a topic a lot of pharmacists don't pay much attention to. What do they need to know?

Wilson: What we've found and what's most important is that as long as you have redundancy in the switch component, and your up time is in the 99%-plus range and the speed is good, then the difference-makers are the customer service provisions and the extent of the preedit and postedit services. Not too long ago, my personal belief was that the value prop for PPE was break even at best. I don't see it that way today. I think every pharmacy should be using preedits and postedits.

CT: What are the most critical edits?

Wilson: One critical edit is the retro-submission of AWP price updates, because PBMs are delaying when they raise the AWP until days after you'll see the increase on your wholesaler's invoice. DAW edits are another. It's remarkable how many claims are missed when a brand name is available. NPI edits are going to be a huge issue. One of the focuses pushed down from CMS is auditing for NPI numbers from physicians. It will become so cumbersome that you are going to need an edit against a large database to make sure that you are submitting a valid NPI. So a customizable preedit and postedit offering is a huge switching services value prop now, and will be going forward.

CT: Is there anything else pharmacists should be looking for from their switches?

Wilson: The other big issue with switching is the data management component. This is the biggest value prop, bigger than edits. If we, as the switch, can get the data, then we can perform analytics for contract compliance. We see it all the time, where certain network providers under contract aren't being paid the same as other pharmacies in the network. If you aren't analyzing your data for compliance, you can miss out on thousands of dollars you are contractually owed. We have several PBMs right now that owe us thousands of dollars because they mispriced claims compared to the contract. You've got to analyze your data to know this. We also like to take the data and then use it as we assess and negotiate contracts to see what the profitability of the terms are when compared to historical data and for the MAC terms offered. These services have become very important.

Another thing about network contract management and switch data is that it enables you to develop and execute electronic reconciliation of claims. This is another service that's driven by data access and aggregation.

CT: So pharmacies are going to see some real improvement from taking a more active approach to the data they are generating every day.

Wilson: That's right. You need to be able to interpret and create intelligence from your data. These abilities then spill over into almost every aspect of your business.