Short Cycle Dispensing - A Prediction - Will Fail to Deliver Net Cost Savings

Last night I posted an "opinion" on an age old complaint in the pharmacy industry about dispensing fees being too low to truly pay for the costs associated with dispensing (inlcuding some clinical-type interventions).  In light of the impending Part D changes in the long-term-care (LTC) pharmacy industry, I thought I would expand upon my thoughts about short cycle dispensing (see a previous post explaining the short cycle dispensing proposed rule) and talk a little about what could happen with LTC dispensing fees with the short cycle dispensing changes.

A base assumption of the short cycle dispensing initiative (which some, like LTCPA, have argued is greatly flawed) is that reduced waste of unused medications will overcome increased cost of dispensing fees.  The commentary that accompanied the proposed CMS rule reinforced the fact that CMS cannot get involved in the negotiations between pharmacies and Part D plan sponsors that determine ingredient costs and dispensing fees - these are trading partner discussions.  CMS did, however, stir the pot a bit, and make comments about their understanding that current dispensing fee arrangements would need to be altered to account for increased work pharmacies would need to undertake to remain compliant with the short cycle requirements.

On the surface, one could argue that changing from 30-day dispensing to 7-day dispensing will increase the cost to dispense approximately four fold.  This is both (somewhat) true and misleading.  Some costs associate with dispensing will go up close to four fold.  Packaging costs (assuming blister-cards and no cost savings from reducing from 30-day pack sizes to 7-day pack sizes) will likely increase dramatically.  If you assume no new technology leveraging by a pharmacy, and manual processes are used, labor costs to put the medications in the packaging would also increase (though likely not in direct proportion to volume).  A pharmacy servicing LTC facilities are likely already delivering to most facilities on a daily basis already, so delivery costs will likely not be impacted much, if at all.  So, some costs increase, and others are the same (or inflate more normally over time).  The biggest expense (beyond ingredient cost, which I am excluding from this discussion) is labor, so this is likely the most impactful change that would need to be accounted for.

The specific impacts to labor costs are dependent upon what technology is being used by the pharmacy.  The more technology being deployed, likely the less the labor impact.  So, pharmacies have to make a decision on if they want to put $$ into labor, or into technology.  The options for pharmacies are numerous, and it is likely that technology suppliers will expand their offerrings in light of this new mandate.

Another dynamic here is the endorsement, by CMS, of some very specific technology options for dispensing in the LTC space, as the most efficient options.  "Automated Remote Dispensing" is a technology that has appeared in recent years, which allows commonly used medications to be housed on-site in the LTC facility, with ultimate control on dispensing still residing with a pharmacy via a remote connection between the pharmacy's dispensing system and the software that runs the machine in the facility.  This setup lets the pharmacy "dispense" the medication to the patient (via a nurse using the machine, requesting the meds) dose by dose.  In this way, there is nearly no lost medications due to changes in therapy or change in status of the patient, because the medications don't become the patient's until the time of administration.

This technology is likely the most expensive to implement, and has additional challenges like facility design (and available space).  On top of that, you're talking about investing in a machine for each facility serviced (if nor more than one per facility) by a pharmacy.  The costs could be enormous.

And so we come back to CMS, and their colorful commentary.  In the proposed rule, CMS went as far as to state that they believe it appropriate for dispensing fees to include $$ to help pay for technology investment...   In fact they propose to change the definition of dispensing fee to include the costs associated with acquisition and maintenance of technology to maintain reasonable costs...   

And this is why I say CMS has basically endorsed automated remote dispensing.  In combining a recognition that remote dispensing is the most efficient methodology (with least waste) and giving the negotiating parties direction to consider technology costs in the negotiations that determine the dispensing fee, they have set the stage for variable dispensing fees, with higher fees to be paid for certain technologies - specifically automated remote dispensing technologies.

The ballpark estimation for the CMS-expected adjustment to dispensing fees is an increase between 50 and 100%, with remote dispensing coming in near the 100% increase, and other less technology based methodologies coming in on the lower end.  This range of dispensing fee increase would likely eat up at least half of the expected ingredient cost savings.  The higher the actuals come in, the less $ saved...

Realistically, with some costs associated with dispensing using current methodologies increasing up to 4 fold, and others increasing dramatically, even if not 4 fold, I truly can't see pharmacies agreeing to dispensing fee increases of only 50%.   This will be a problem for Part D sponsors, as sponsors need LTC pharmacies in their network to provide access to medications for LTC residents who are their members...  and it should be completely expected that pharmacies will terminate their participation within a payer's network if the dispensing fee discussion does not yield agreement at a level that covers their costs.  The fight will be on.

So, the dispensing fee discussion is going to get ugly.  And if the net impact to dispensing fees come in closer to 200-300% increase in fees, the savings booked in the health reform legislation will never come to pass (shocker there, BTW).

And in the end, much blood, sweat and tears will be shed, an industry will be shaken by a monumental change, and costs savings will be minimal (if not turning to an increase in cost).  Put me down...  That's my bet.  Anyone want to bet the other way?