REFERENCE GUIDE FOR PHARMACY MANAGEMENT & PHARMACOECONOMICS (VOLUME I) FIRST EDITION 2005-2006Reference Guide for Pharmacy Management and Pharmacoeconomics TABLE OF CONTENTS A Social & Behavioral Aspects of Ph maceutical Social and Behavioral Aspects of Pharmaceutical Care Illness, Sickness and Disease Types of Behaviors The Fundamental Attribution Errors and Health (survey instrument) 5. Prescribing Behavior of HealthCar 6. Theories of Human Inference Providers 7. Administrative Programs for Controlling Prescribing 8. Using Persuasion to Improve Prescribing 9. How Communication Affects Therapeutic Outcomes 10. Barriers To Interprofessional Relations 11. How To Improve Interprofessional Relationships 12, Consumer Behavior Models Purchase Decisions and Types of Involvement Different Models of Pati¢ Practitioner Relationships ‘A Model for Analyzing the Medication Use Process Noncompliance and Factors Affecting Noncompliance Prescription Errors and Pharmacist Responsibility 18, Quality and Improving Quality of Care B_ Principles of Pharmacoeconomics 19. ECHO Model and Economic Outcomes Cost/Renefit Valuation ‘Types of Economic Analysis Differential Analysis Decision Analysis Instruments To Measure the Quality of Life Quality of Life and Patient Satisfaction 26. Pricing Strategy for New Products 27, Product Positioning Strategy 28. Demand and Elasticity of Demand 29. DRGs (Diagnosis Related Groups) www.pharmacyexam.com u 12 13 19 23 a4 4g 49 55 58 59 i) 6 64 @ 69) Krismanae Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics agecare Organizations (MCOs) 30.) Managecare Organizations 1, Physician Reimbursement Methods 32, Medical Loss Ratio (MLR) Pharmacy Benefit Management (PBM) Pharmacy Distribution Systems Drug Formulary Drug Utilization Review PBMs Performance Indicators Medicaid and Pharmacy Benefit Management (PBM) Medicare and Pharmacy Benefit Management (PBM) Medicare Modernization Act (MMA) Electronic Prescribing and Its Outcomes Disease Management Programs ‘Types of Reimbursements for Manage Care ; Prescription Plans D Financial Management of Pharmaci 44) Financial Statement Analysis in U.S. Healthcare System 116 : 45. Financial Statements and Relative Terms 123 : 46. Depreciation 127 : 47. Inventory and Cost of Goods Sold 13 48) Break Even Analysis (BEA) 136 : 49) Types of Costs 141 : E Pharmacy Administration & Jurisprudence ; Pharinacy Law 147 Interpersonal Communication 157 : New Drug Approval Process 167 Drug Literature 169 Poison Control and Accidental Poisoning 172 ; F) U.S. Healthcare System 55. U.S. Healthcare Delivery System 179 . 56) Important Terminology 187Reference Guide for Pharmacy Management Krisman, and Pharmacoeconomies 1- Social and Behavioral Aspect of Pharmaceutical Care Pharmaceutical Care: It profession of the pharmacy. the study of the logical consequences of the evolution of the What is the true meaning of health? It is a very hard task to define health since it is not limited to a single factor. For example, if we try to define health by using medical definition, it would not be sufficient since there are sociological, epidermological, health planning, and physiological definitions as well. In short, it 1s hard to define health by using a In medical terms, health may be defined as the absence of disease or the maintenance of physiological parameters within accepted norms (e.g. blood glucose, blood pressure, cholesterol). Anderson has summatized epidermological and health planning definitions into five major categories. These are: 1 Health as a product or outcome (the result of adequate planning and utilization of resources). 2 Health as a potential or capacity to achieve goals. 3. Health as an everchanging dynamic process (the interaction between agent, host, and environment). 4, Health as something experienced by individuals. 5. Health as an attribute of an individual, * According to the World Health Organization, health is the state of complete physical, mental, and social well-being, and not merely the absence of disease or infirmity * ‘The Quality of Pharmaceutical Care: The quality of pharmaceutical care can be evaluated and examined by resources such as structure, process, and outcon ‘components. www.pharmacyexam.com 8Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics 01 Structure resources are required to obtain high-level quality care. For example, one must have laminar flow hood in order to provide the highest of parenterals admixtures. It does not matter how efficient or smart you are, structural resources play an important role to address the quality of care, Referring to the above example, obviously if you have a home-infusion company without laminar flow hood, the quality of parenteral preparations will be considered poor. Therefore, the structural resources would be considered necessary to obtain a high level of quality care. quality B. Process Resoure ‘efers to many activities performed by a pharmacist that are considered a part of quality care. Referring to the parenteral preparation example, the use of aseptic technique while making IV admixtures is defined as a process resource. Outcomes: It refers to the experience of a patient who receives the care. The high quality of care is assumed when the patient experiences the desirable outcomes. Thus, the structure, process, and outcomes are intended to be part of an integ iple that explains the quality of care is a hospital with a CAT scanner is presumed to render a higher quality of care than a hospital without one. Health Behavior Health behavior is an action taken by a healthy person for the purpose of remaining healthy or in an asymptomatic state, For example, brushing teeth, avoiding tobacco ; and alcohol, regular exercising, wearing a seat belt, ete. People engage in such behav- habit, attraction, fear, and death, ied model of quality care assessment. Another exai iors for seyeral reasons, includin flode! of Health Behavior or Health Belief Model The Health Belief Model was developed to give healthcare prof sssions an idea as to why and under what conditions people take preventive health actions or behaviors. ‘The Health Belief Model depends on three classes of variables 1. The individual's psychological state of readiness to take specific action, The deg ourse of action is believed to have a net beneficial ‘0 which a particular 4 health threat. effect in reducit 3. Accure to action that may trigger appropriate action when needed. www.pharmacyexam.com ’Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics * Christensen, Fincham and Wertheimer have used the Health Belief Model to find out the patients’ compliance with therapeutic regimens. Christensen also proposed that compliance with the drug therapy is a dynamic process in which patients continuously reassess the decision to comply Fincham and Wertheimer used the Health Belief Model to predict the patient's initial compliance rate with drug prescriptions. By using this model, they categorized 69% of patients into a group that did not comply with the initial prescription. For example, the patient receives the prescription from the prescriber, and also drops it to a pharmacy, ut never picks up the filled prescription from the pharmacy Barriers that affect the patient’s compliance: Cost of medications Lack of access Distance from the pharmacy Transportation facilities Psychological behavior of patients Wellness and Health ined as an integrated method of functioning which is oriented towards s the potential of which the individual is capable, within the environment or she is functioning. wayne * Wellness is de! maximizii where h Wellness normally involves the total person. The mind, body, and spirit are insepa rable and constantly interact to determine one’s experience and behavior It is seen as on by per s potential for wholeness and well-being, and is strongly influenced sonal choice and environmental factors. www.pharmacyexam 10Reference Guide for Pharmacy Management and Pharmacoeconomics Krisman Illness, Sickness and Disease * According to Eliot Friedson, illness is described as: “One is immediately obligated to distinguish between illness as a purely biophysical state and illness as a human, social state. Illness as a biophysical state involves changes in bones, tissues, of vital fluids of any living organism. Illness as a social state involves changes in behavior that occur only among humans and that may vary with the culture.” iinction between illness and a disease: * Illness is defined by laymen as a reaction to perceived biological alteration while disease is defined by physicians, and for that reason, it is perceived to be a more precise term, The following sentences may help an individual to distinguish illness from a disease. 1. A person may have a disease and not be ill 2. A person may be ill and not have a disease. 3, Both disease and illness may be present. * To understand more precisely, we can take the following example. Hypertension is a disease that has been defined by healthcare professionals as a combination of diastolic and systolic blood pressures outside “normal” limits. Now, it may be possible that a person with the disease of hypertension may be asymptomatic, and therefore not il. And, as not being ill, this person may not seek care. An opposite of this can also be true. A person who experiences dizziness or headaches may perceive himself or herself as ill, seek care, and be diagnosed as disease-free. * Practically, both these differences may have serious outcomes: failure to receive needed care in the first instance and a possible waste of medical resources in the second. A definition of sickness: * Sickness is defined as a social state conferred on an individual by others. It is socially defined by sociologists. * According to Bezold, the state of health is determined by the interaction of the following variables: 1. Biology (e.g. generic determinants) 2. Behavior (e.g. smoking, drug abuse, eating habits) 3. Pre and post environments (including physical, biological, economical, and social) 4. The healthcare system yww.pharmacyexam.com iReference Guide for Pharmacy Management Krisman and Pharmacoeconomics Pepe Types of Behaviors ‘There are three types of health-related behaviors: Health Behavior ness Behavior Sick Role Behavior The pharmacist is most involved in the illness behavior, to a large extent in the role behavior, and in very few instances with the health behavior. Health Behavior: Any activity undertaken by a person who believes himself to be healthy, for the purpose of preventing disease or detecting disease in an asymptomatic stage. Health behavior of people can be successfully expressed by the Health Belief Model. According to this model, people who step up to obtain preventive care or follow good nutrition and exercise in order to maintain good health are driven by the following factors: The psychological effects of an individual (for example, a person whose father is suffering from diabetes will more likely be involved with preventive care than a person without such psychological effects. The individual must also believe that a proposed action should be feasible and appro- Priate to use, and that it would reduce susceptibility to the condition or to the serious- ness of the condition. Some sort of cue or stimulus is needed to trigger an action response. For example, a person with poor eating habits may be convinced to pay more attention to eating habits if they are told they may cause ulcer or bowel problems in the long run. Health Locus of Control Model and Health Behavior: This is another theoretical model that is widely used to,explain an individual health behavior. This model is usually administered to large population samples, and can be measured by a survey instrument. Factors that affect individual health behavior under this model are: Previous illness experience Religious belief Educational level Economic status wow.pharmacyexam.com 2Reference Guide for Pharmacy Management and Pharmacoeconomics Krisman The Fundamental Attribution Errors and Health (survey instrument): An attribute is a characteristic or property that an individual has. For example, Steve is a handsome young man. The observer can assign another characteristic to him: I think he is an honest young man. In the above example, the observer is making an attribu- tion based on what he noticed. However, an attribution made by an observer may be true or may not be. There are three possibilities 1, Steve may always exhibit th trait (honesty) or 2, Steve may exhibit this trait (honesty) only in certain situations. Or 3. Steve may seldom exhibit this trait (honesty) In short, a potential difference exists between the observer’s attribution and various situations that have not been observed by the observer. For example, in above case Steve may be a dishonest in most instances, however at the time when the observer is making an attribution, his behavior may likely give off an impression that he is a honest person. * Fundamental Attribution Error: Normally, people tend to attribute traits to others, and to see their own behaviors in terms of the various situations in which they operate on a day to day basis. They see themselves as actors and interpret their responses as more of a response dependent on different situations while they observe others. Acting as observers, they tend to see stable characteristic in others (a stable characteristic does not vary by situations). Researchers have described this actor-observer tendency of people as “fundamental attribution error.” It helps one to differentiate between acute symptoms (situations) and chronic symptoms (traits). Take for example a pain related to headache. Many of us experience the head- ache on an infrequent basis and seek situational explanation for the cause of it. The headache may be because of poor sleep or due to a lack of coffee in the morning. In this example, we are responding to a symptom by seeking a situational explanation for the pain. For some people however, the symptoms of a headache are more permanent. For example, a person suffering from migraine. For such a person, these symptoms become a characteristic of him. He is able to say he is healthy despite chronic disease (migraine headache) because he can do the things that he expects to be able to do. Lewin’ Step Change Model: * Dissatisfaction with symptoms is the driving force behind a patient’s action to visit a physician or pharmacist. Symptoms that are unusual and associated with perceived risk, and that interfere with day to day function of the life, may often lead to action on the part of the patient. One way to summarize this change is with Lewin’s unfre movement-refreeze change process. ‘www.pharmacyexam.com: Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics * —_Itis normally described as follows: Unfreezing ——} Movement —— Refreezing + ‘The process of change includes an initial phase where an individual must be “stuck from existing ideas and behaviors. This is known as the “Unfreezing Phase.” For example, Mr. Mehta has a habit of smoking. He smokes 10 to 15 cigarettes per day. This is called the unfreezing phase. ¢ Once the individual is ready for change, he/she must be moved toward the desired behaviors, sometimes over a period of time. This phase is called “Movement.” Due to heavy smoking, Mr. Mehta's lungs are not functioning properly, and a physician advised him to quit smoking. Mr. Mehta is now ready to quit smoking (change in behavior), and this phase is called “Movement.” However changing to new behaviors, is not enough. Those new activities must be solidified, habituated, and reinforced so that they continue over time. This phase is known as “Refreezing”. Referring to Mr. Mehta’s case, six months after quitting smoking, he starts again. This is breaki ig off the phase “Refreezing.” This phase requires a person to stick to a changed behavior. . Force Field Analysis: Restraining Forces a Desired 4 / State | Ll llnsie / prabiaaEatater eg Prestix TT TT [Divine Boces Time i A Force Field Analysis is a useful tool for a healthcare provider in identifying the dynamic state in which the patient can be placed. In a routine life, forces change each day to both facilitate and inhibit the patient’s response to the symptom of illness. A Force Field Analysis helps to visualize these various forces. In Figure 1.1, there are {wo types of forces listed. Forces listed that encourage change are defined as driving forces, whereas the other forces that make change difficult are described as restraining forces. In a practical life, these forces are complex, and each may have dual characteristics of encouraging and preventing a change. Familiarizing with these forces may be helpful for patients as well as healthcare providers, www.pharmacyexam.com 14Reference Guide for Pharmacy Management Krisman, and Pharmacoeconomics Illness Behavior: * Any activity undertaken by a person who feels ill, for the purpose of defining the state of his health, and of discovering suitable remedy, is defined as “Iliness Behavior.” The “Sickness Career” helps with understanding the behavior of people when they are ill The “Sickness Career” begins with a state of wellness. The changing from a state of Wellness to illness is mainly depends on the presence and types of symptoms. For example, many people-even those who feel well are able to identify some sort of symptoms at any given period of time, Often, they will view these symptoms as normal, however it is the intensity of the symptom that ultimately decides the change of one’s status from being healthy to being sick. * According to Twaddle and Hessler, the following factors help in determining the significant change in health status of an individual: These factors are: 1. Interference with normal activities and functions (e.g. bowel habits, work ability) 2. Clarity of symptoms (sharp chest pain) 3. Tolerance threshold (some people can tolerate more pain, either because of personal characteristics, cultural factors, or the nature of their work) 4, Familiarity with symptoms (common symptoms that one has experienced previously, and recovered from are likely to be viewed as less serious than those that have not been previously experienced 5. Assumption about the cause (e.g. in the case of chest pain, it may be viewed as anything from heart attack to indigestion) 6 Assumption about prognosis (e.g. if long-term incapacity or possible death is associ- ated with the symptom, it is likely to be viewed as more serious than the symptom without such intensity 7. Interpersonal influence € Sick Role Behavi * Any activity undertaken by those who consider themselves ill for the purpose of etting well. According to Talcott Parsons (sociologist), the sick role consists of two rights and two duties, www:pharmacyexam.comReference Guide for Pharmacy Management Krisman and Pharmacoeconomics * Rights: Freedom from blame for illness Exemption from normal roles and tasks These rights are appropriate only if a patient fulfills his duties. Duties: To do everything possible to recover To seek technically competent help The Sick Role gives an individual a reasonable excuse for making claims on others for care. People with symptoms (who are ill) can, with the confirmation (from a health care provider such as a physician), adopt the sick role (socially defined). A person can enter the Sick Role if a physician confirms that the person is ill or if a family or friends of the person are willing to accept the status of “sick”. Thus illness (individually defined) becomes sickness (socially defined), especially when the physician confirms the existence of a disease. * The following four factors play an important role in determining whether one is defined as “sick” or not Legitimization by a physician: A patient receives medical care from a physician. Prescriptions are important evidence of this factor. 2. Symptoms: A pain, discomfort or other manifestation that indicates change in health. 3. Prognosis: The expected outcome of the illness (e. better, stabilize, or is uncertain, etc.) probably will get worse, get The Sick Role Behavior is a valuable tool in understanding the patient behavior, however this behavior does not apply to all cases. For example, using a Sick Role Behavior, how can one explain that a chronically ill patient will “recover”? In such instances, a t (chronically ill) can adopt a Chronic Iiness role. Orthodox and Unorthodox Healing * An orthodox healing system is defined as a healthcare related service that is scientifi- cally and socially well accepted around the world (e.g. allopathic medicines and health-related services) * An unorthodox healing system is defined as a healthcare related service that is traditionally accepted but not socially (e.g. hydrotherapy, wave and radiation ther etc.) www.pharmacyexam.com 16Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics * Lists of normally employed unorthodox healing systems: 1. Physical therapy 2. Hydro therapy 3. Nutrition therapy 4, Plant-based therapy 5. Wave and radiation therapy 6 Mind and spirit healing 1. Self-exercise 8. Comprehensive system 1. Physical therapy: It can be further classified into the following categories: a. Massage b. Rolfing ¢. Sensory awareness 4 Acupuncture e. Reflexology f Moxibustion & — Chiropractice 2, Hydrotherapy: It can be further clas ied into the following categories: a. External hydrotherapy (e.g. baths and douches) b. Internal hydrotherapy (e.g. colonic irrigation, enemas, inhalations) : It can be further classified into the following categories a. Food supplement therapy Examples of food supplement therapies: Apple cider vinegar Molasses, Ginseng Honey Brewer's yeast b. — Macrobioties Macrobiotics: It is popularized in Japan. Foods are divided into yin or yang. By balancing yin and yang foods, one has an opportunity to achieve a balanced diet. Examples of such foods are: www.pharmacyexam.com 7Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics ‘Yin food ‘Yang food Fruits and leaves Dry food Hot aromatic food Food growing below ground Food containing water Salty or sour food Food grown in hot climates Food grown in cold climates Plant-based therapies: It can be further classified into the following categories: Tincture Aroma therapy Herbal products Wave and radiation based therapies: It can be further classified into the following ategories: Orgone therapy Pyramid therapy Mind and spirit healing therapies: It can be further classified into the following cegories: Biofeedback Hypnosis Spiritual healing Meditation Psychodrama Primal therapies Encounter groups Sensitivity training ‘Translational analysis Self-exey ‘Yoga Sports Dance Trai chi Comprehensive system: Ayurveda Oriental medicine Homeopathy www.pharmacyexam.comReference Guide for Pharmacy Manageme and Pharmacoeconomics Krisman Prescribing Behavior of Healthcare Providers * tis very important to find out the prescribing behavior of practitioners since there is substantial evidence that prescription drugs are often used inappropriately. Prescribing errors are classified into two major categories: 1 Error of commission: It includes those errors which are incorrectly written. 2, Error of omission: It includes those errors in which the prescriber fails to specify a required element in the prescription (e.g. missing strength or dosage form). These errors can cause many problem for patients, ranging from decreased quality of life to unnecessary healthcare costs burden. Therefore, it is important to find out why practi- tioners prescribe in a certain fashion and how prescribing errors occur. To better understand prescribing errors and prescribing habits of practitioners, we can study a few models. These models will give us a better and clearer picture. There are three different types of models that may help in studying the prescribing pattern of physi 1, Demographic and practice variables associated with prescribing 2, Psychosocial dynamics related to prescribing 3. Cognitive model of prescribing 1, Demographic and practice vari \ciated with prescribing: * Factors that affect prescribing decisions under demographic and practice variables model: Physician’s education Physician’s age Physician’s speciality Physician’s Patient's gender Patient's age Patient's ethnicity ionship with colleagues For example, the heart specialist-physician may have good knowledge about cardiac- related drugs, but less knowledge about psychiatric drugs when prescribing to a depressed patient, www.pharmacyexam.com 19Reference Guide for Pharmacy Management Krisman and Phari onomics Psychosocial dynamics related to prescribing model: Psychosocial factors that affect physician’s prescribing: Prescription is a symbol of power and authority, and only practitioners have such power and authority to provide drugs, Prescription is the way for physicians to express concern for patients. Prescription is a powerful tool to end lengthy discussions and the patient's visit, Prescription affirms that the patient is really il. Cognitive model of prescribing: In this model, the prescribing decision of the prescriber merely depends on two major criteria’ he outcome of a prescribed drug. the risk associated with a prescribed drug. For example, if a patient is suffering from a mild illness, and a prescribed drug m: ‘cause serious and fatal reactions, it is unlikely that the prescriber will prescribe the drug to the patient. In contrast, ifthe patient is suffering from cancer or any other serious illness, it will force the prescriber to take the risk associated with the pre scribed drug due to the seriousness of a disease. In this model, the prescriber’s con- cems about drug attributes such as dosage, strength, duration and length of action of the prescribed drug, and correlates these attributes with drug's outcomes such as side or toxic effects of the drug, or cure rates of the drug. Thus, cognitive models of pre- on which prescribing outcomes and drug attributes are really important ians make prescribing decisions. ‘The drug choice model is a cognitive prescribing model related to Vroom’s expect- ancy theory. Factors that affect the drug-choice model (selecting drugs for optimum benefit) are: Control of disease by the prescribed drug Patient’s compliance with the prescribed drug Side effects of the prescribed drug Cost of the prescribed drug Is the prescribed drug satisfying a patient’s demand? Criticism for colleagues www.pharmacyexam,comReference Guide for Pharmacy Management f Krisman and Pharmacoeconomics Sources of drug information that help physicians compare attributes and outcomes of drugs, and thus help in prescribing decisions. Core education i. 2. Continuing education programs 3. Professional colleagues 4. Pharmaceutical advertising and pharmaceutical sales representatives 5. Patients may provide information about drugs through their previous clinical experience with drug therapy, or may request a specific drug be prescribed. Researchers believe that a patient's psychology is a major factor that affects the physician’s prescribing decisions. Theories of Human Inference * Theories of human inference can be used to evaluate and design educational methods that affect a physician's prescribing. The inference puts more emphasis on adverse or toxic reactions and effectiveness of drug therapy, since these two criteria are impor- tant factors that affect the physician's prescribing decisions. When prescribers make inference, they use one or more types of judgmental heuristics. * What is judgmental heuristics? Heuristic is defined as a rule of thumb, simplification, ot educated guess that reduces or limits the search for solutions in domains that are difficult and poorly understood. Judgmental heuristics is defined as an educated guess which helps to classify and interpret new information, and drive us to make a final decision. We use these heuristics in our normal life constantly without realizing it. Most of the time they are accurate, however sometimes they may lead to judgmental errors. There are four types of judgmental heuristics that affect the prescriber’s judgment. They are 1, _Representativeness heuristics 2, Availability heuristics 3, Framing heuristics 4, Anchoring heuristics 1. _Representativeness: This type of heuristic involves a similarity between events or objects. For example, if a patient feels better after a drug is given, the prescriber may use judgment that the patient is cured, but the improvement could be a result of a number of other factors such as improved diet, normal fluctuation in the illness, decreased stress or using OTC therapies. Representativeness heuristic occurs when a physician does not consider these other factors in the outcome of therapy. This would not stop here; by using this judgment that the patient has been cured, the physician will prescribe the same drug in the future (from his previous experience) to other Patients if he encounters similarity of symptoms of disease in patients. www.pharmacyexam.com 21Reference Guide for Pharmac; Management Krisman and Pharmacoeconomics ‘Availability heuristics: This type of heuristic helps us judge frequency, probability and causality. According to this type of heuristic, new information is accessed accord- ing to information that is cian sees the same sort of symptom patterns frequently in a series of patients and makes an inference that a new patient with similar symptoms has the same illness. If proper clinical and laboratory tests are not used to verify the diagnosis, this could result in diagnosis error and inappropriate prescribing. ‘ore readily available from memory. For example, a physi- Availability heuristic is affected by vividness. Vivid pictures, stories and actual patient cases may be available more readily in memories and therefore affect the physician's judgment. It is easier to recall these images than statistics, graphs or figures when ‘making a diagnosis. Prescribing can be affected by these images through vividness. Framing heuristics: This type of judgmental heuristic occurs when physicians use another alternative to avoid an undesirable outcome, For example, a particular drug nay cause cancer when used for a prolonged time or 1 in 1000,000 patients. A pre scribing physician may put more emphasis on undesirable outcomes when maki prescribing decision, even though the drug has the best clinical effets for the given diagnosis. The best example of framing is saccharine (sweetener) which was taken off the market due to association with cancer in rats when given in large doses. ‘Anchoring heuristics: Another type of heuristic is anchoring. Most of us make initial assessments and decisions until we find correct answers. However, sometimes our adjustments are not adequate to support our initial assessment since we are under high influence of the initial assessment. This resistance to change from initial decision is called anchoring. For example, a practitioner makes an initial assessment (from experience and sets of symptoms) and prescribes a drug to a patient until he receives results from laboratory or diagnostic tests. The anchoring occurs when the prescriber fails to discontinue the drug even after laboratory or diagnostic tests indicate that it is not needed. www.pharmacyexam.comReference Guide for Pharmacy Management and Pharmacoeconomics 1 3 4, Krisman Administrative Programs for Controlling Prescribing Administrative programs are those in which policies are established by organizations to restrict prescribing. They can be divided into the following categories: Prescribing restrictions (e.g. formulary) Financial incentives to control prescribing costs Required speciality consultations for use of specific drugs Medical management protocols Prescribing restricti A formulary is a powerful tool to control or restrict the prescribing decisions of physicians. Prescribers have to chose the drug from the provided formulary listing. Which drugs should be kept or removed from the formulary is decided by the Phar- macy and Therapeutic Committee (P & T Committee). It consists of prescribers, pharmacists, plan administrators, and other healthcare providers. Expensive or new drugs are normally excluded from the formulary. In order to prescribe a drug outside of the formulary, a prescriber must receive an approval from a program administrator. Formularies help to control costs related to drug expenses, Financial incentives to control prescribing costs: In this method, a part of profit or expense related to prescribing is passed on to prescribers. For example, a physician may save drug related costs by prescribing Enalapril over Lisinopril to a hypertensive patient. The drug related outcomes and adverse effect profile of both these drugs are similar; the only exception is pricing. By prescribing Enalapril, a physician has an incentive to receive a share of saving. The ‘opposite is also true. The physician has to reimburses the cost for selecting an expen- sive drug over a therapeutically identical cost-economic drug. This can be achieved by managing Risk Pool. The portion of prescriber reimbursement (expense or profit) goes into a separate fund, usually controtled by a plan administrator. At the end of the year, the remaining balance is forwarded to the prescriber. Speciality consultations for use of specific drugs: In this type of administrative program, a particular class of drugs is only prescribed by aphysician’s specialist (e.g. psychiatrist, dentist). To get a specific drug under this, program, a patient has to consult a specialist. www.pharmacyexam.com 23Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics D. Medical Management Protocols: Under this type of prescribing restriction program, prescribing is preprogrammed. A protocol is developed by experts to treat a particular disease, and the preseriber has to Shey this protocol. This protocol also includes the selection of drugs, and bv ‘ously a physician obeying the protocol must use drugs listed under a given protocol. Improved Physicians “There are two types of methods which normally influence the physician's prescribing ‘They are classified as: Administrative methods Educational methods ‘Administrative methods: They generally limit prescribing without affecting prescribing attention. The administrative methods of influencing prescribing are often supplemented with educational methods. For example, drs formulary represents aaah ind of administrative method which restricts or controls the phy sician’s prescrib- ing. When a preseriber selects a drug outside of formulary, a pharmacist may contact the prescriber to educate and replace the nonformulary drug with a formulary alterna tive, Here, the pharmacist represents one type of educational method. Educational methods: As discussed earlier, educational methods prov ide drug related ao ewtions to prescribers which may change the thought process, and therefore practitioners’ prescribing decisions “There is an interesting difference between these two methods. If an administrative program is not enforced or implemented properly it will no longer affect the pliysician’s prescribing. This ean occur if the pharmacist does NOt fact the pre- vcniber for prescribing nonformulary drugs or does not follow the formulary restric~ tion, Thus, the success of the administrative program depends on strict control and influence of an educational method. However, the opposite is not tric. ‘An educational method may affect the physician's prescribing even after the program has ceased, ince it may change the thinking behavior of a physician oF a physician's prescribing, intention. Therefore, to achieve long-term success or change, an educational program must be provided repeatedly. www.pharmacyexam.comReference Guide for Pharmacy Management and Pharmacoeconomics Krisman Using Persuasion to Improve Prescribing Persuasion is an important tool to educate a prescriber to improve his prescribing behavior. A persuasion model includes three important components. They are: 1 The source The message The receiver 1. ‘The source: It is defined as the origin of the information. In order to persuade a physician, the source must be credible. The credibility of the source can be also enhanced by providing a title or specifying a member of the committee or the name of physicians who was involved in developing the information. The presenter must be confident, speak authoritatively, and conduct himself or he manner, If meeting face to face, the presenter must be well-dressed and polite. elf in a professional icting education 2, ‘The message: It is also an important component of cot ntervention to persuade a physician to change his prescribing behavior. An oral presentation with charts and brief summaries better serves the purpose of the mess: rather than just a written presentation. The information should be provided in such a wnner that it does not solicit defensive responses from a physician. For example, rather than telling the prescriber that he or she made an error, try to address and correlate information that points to the problem The receiver: The receiver is the person who is getting the messa will be the prescriber. The education and intellectual level of the receiver also plays an important role in successful intervention. The presenter has to interact more frequently with the prescriber in order to find out the method that most suitable to mimic a successful intervention, Also, the level of the information (message) must meet the intellectual level of the prescriber (receiver). For example, dealing with a specialist may require more in-depth information with quantitative proof than dealing with a general practition ge. In our case, it How Communication Affects Thi The frequent communication between healthcare professionals improves the therapeutic outcomes for patients, Benefits associated with frequent communication are: ‘www.pharmacyexam.comReference Guide for Pharmacy Management Krisman and Pharmacoeconomics Decline in rate of prescribing errors Reduction in number of medications Decline in adverse drug reactions Reduction in number of errors related to drug administration Improved patient’s compli ce Improved therapeutic outcomes can also be achieved by encouraging # rational prescribing and providing a detailed information of patient's profile Rational prescribing ‘Complete and detailed information about patient’s drug regimen before prescribing the drug Rational prescribing: Rational. prescribing is an important element to achieve better therapeutic outcome for patients. Normally, the prescribing habit of a prescriber is greatly affected by sales representatives and drug-manufacturing companies. Unfortunately, information provided by these sources is more ot less to promote their own products. Therefore, itis essential to encourage physicians to use rational pre- scribing habits. The prescribing habit of a physician is influenced by three important factors. These are: ‘Academic detailers Educational campaigns Drug usage guidelines Academic detailers: They are usually pharmacists who provide prescribing physicians unbiased drug information in order to achieve an optimum therapeutic outcome. Educational campaigns: They are used more in hospital settings to change a prescrib- ing habit. Most of these campaigns emphasize a certain class of drugs (e.g. antibiotic: analgesics, antipsychotics, etc.) to achieve rational prescribing and improved therapeu tic outcomes. Drug usage guidelines: They are normally proposed by the Pharmacy and Therapeutic Committee of Hospitals-consisting of prescribers, pharmacists and plan administrators to determine and implement prescribing protocol in order to achieve better therapeutic ‘outcome as well as cost control. ‘The second factor that affects the patient's therapeutic outcome is an adequate knowledge about the patient's current regimen, Many times a patient visits multiple physicians or specialists due to the nature of the disease. Each prescriber may pre~ scribe a new drug without asking or looking into the patient's current drug regimen www.pharmacyexam.comReference Guide for Pharmacy Management and Pharmacoeconomics Krisman * This may increase the chances of drug interactions and duplication of therapy. The cost related to hospitalization (due to drug interactions or therapeutic duplication) can be minimized if physicians and pharmacists both do prospective drug utilization reviews before prescribing or dispensing a drug to a patient. Barriers To Interprofessional Relations There are a number of barriers that prevent an effective communication between pharmacists and other healthcare professionals. Out of these, attitude, time, and knowledge are major concerns. Attitude Time and money Skill and knowledge 1. Attitude: The attitude is the most common barrier that prevents the effective commu- nication between pharmacists and prescribers. The attitudes and expectations of pharmacists are developed on the basis of previous experience. Due to complex health care settings, pharmacists believe that physicians are usually unapproachable, and therefore many pharmacists simply avoid contacting the physician unless it is strictly necessary. One of the conferences in the UK reported that “pharmacists see doctors as ns’ whereas physicians see themselves as a last resource to provide health- diagnostici: related services to patients, and physicians see pharmacists as medication dispensers, while pharmacists see themselves as drug experts. o Tin nd money: The lack of time is an excuse provided by pharmacists to avoid thcare professionals. However, itis also true that many n retail setting have no sufficient help to provide extended health nistrator responsibility to provide adequate help and financial incentive to pharmacists to encourage them to extend their services beyond dispensing. This way, a healthcare cost can be effectively controlled (e.g. by preventing drug interactions or eliminating a duplicate therapy before dispensi optimum therapeutic outcomes can be achieved. communication with other he: pharmacists work cd services to patients. It is plan adr and 3. Skill and knowledge: The lack of skill and knowledge may prevent many pharmacists from offering counseling to patients. This may happen when pharmacists are not in touch with their colleagues or avoid communication with other healthcare profession- als. A major barrier is the inability of pharmacists to communicate with physicians due to the anticipation of attitudes from prescribers. Also, pharmacists may not have all the information about a patient's current medication history, which may lead to poor communication with patients, 6 www.pharmacyexam.com 2Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics How To Improve Interprofessional Relationships Effective communication skills play an important role in building up suc interprofessional relationships with prescribers or patients. Many pharmacy courses now put more emphasis on effective communication skills i.e. the skills of maintaining ongoing relationships, empathy, body language when interviewing or doing patient counseling, and effectively providing information to ensure optimum benefits. According to Quintrell, a professional and confident approach must be implemented in order to provide successful and effective communication, He states: “As a pharma- cist, you have the right to your professional existence and your professional opinion, and the right to have that existence and opinion respected.” Most interprofessional relationships are based on mutual respect. How can a pharma- cist expect a professional interchange from a prescriber when he is criticizing the physician’s prescribing habits? According to Quintrell, there are four important stages in the process of interchange. ‘They are: Statement Reply Negotiation Resolution ‘Statement: This stage consists of a clear and confident statement about the situation without apologies or indecisions. Reply: In this stage a person (pharmacist) has to carefully and respectfully listen to the needs and wishes of the other person (prescriber). Negotiation; In this stage, a person (pharmacist) may offer help to the other person (physician) with reasonable negotiation. Resolution: This is the final stage in which both parties have to focus on problem resolutions, primarily keeping the patient's benefits in mind. www.pharmacyexam.com 8weeps Reference Guide for Pharmacy Management and Pharmacoeconomics Krisman, ‘Consumer Behavior Models nd what factors drive the consumer to ion, whether the goods are groceries or an expensive car. There are mainly two types of consumer behavior models. They are: Consumer Behavior Models help us to underst make a purchase dec Howard Buyer Behavior Model; This was first proposed by John Howard and Jagdish Sheth in their book The Theory of Buyer Behavior. According to the Howard Model, factors that affect the purchase decisions of buyers are: Purchase intention Brand attitude Brand comprehension Brand attitude relys on information related to products exposed to the consumer's, consumer previous experience with the company’s product, and consumer judgment about the new product or service of interest. EKB Buyer Behavior Model: This model was first proposed by Engel-Kollat Blackwell researchers at Columbia University. The key elements that drive consumers to purchase goods or services under this model are: Recognition of a problem Information search Altemative evaluation Product choice ‘Outcomes The first element that the consumer thinks about is identifying the problem. For example, if Russel’s car gives him trouble for 2 to 3 days, this will drive him to think about whether to fix the car or buy a new car. The second step is to search for informa- tion related to the problem. In the above case, Russel tries to find information from various sources (newspaper, television or internet) to purchase a new car. After the search is completed, an alternative evaluation about the product or service has been conducted. For example, which model or type of car should be selected? The next step is to finalize the product from the available alternatives. The final step will be the outcome of a purchase decision, For example, are you satisfied with the car you purchased? Depending on the outcome, future buying de ions will be made.Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Avene [Purchase Decisions and Types of Involvement ‘There are two types of involvement associated with purchase decisions. One is called high involvement purchase decision and the other is low involvement purchase deci- sion. High involvement purchase decisions are risky, time-consuming and long-term. (For example buying a house, a car or home appliances.) Most consumers are not aware of the risk associated with high involvement purchases, moreover these types of products or services are not easily exchangeable if they are not satisfyed with them. In contrast, the low involvement purchases are easy to make, less time-consuming and short-term. (For example, buying a groceries, toothbrushes or toothpastes etc.) On the basis of the above concepts, Everette conducted a random search to find out which factors affect patient's buying decisions for expensive medications. According to him, the following elements play an important role in encouraging or discouraging patients from purchasing prescription drugs. These elements are: Side effects of a prescribed drug (97%) Physician's recommendation (90%) Strength of prescribed medication (73%) Prior use and experiences with prescribed medications (72%) Price of prescribed medicines (58%) ‘The availability of generic versions (51%) Model of Consumer Choice in Medication Use The important elements of this model are that it helps in the decision problem solving behaviors of consumers. It is described in figure 1 naking and [Encounter the Health Problem { Social Knowledge about Health External Forces ! Decision Making Process | Convince to Use Medication | ‘Choice of Medication Use (Fig 1.2) www.pharmacyexam.com 30q Reference Guide for Pharmacy Management Rena’ and Pharmacoeconomics According to this model, consumer medication behaviors usually begin when the person encounters a health problem or anticipates that he or she is at risk of get sick, Once a person sees himself as sick, he starts looking for a remedy. For this purpose, he seeks help from social factors (social knowledge of health and illness) and external forces such as media, promotional advertising, or face to face interaction with other people. Finally, a decision-making process begins. Under this process, consumer choice and use of medication is affected by a number of other elements such as behavioral, soc and cultural factors. al ut of these, social network plays an important role in the consumer medications. Social networks are those sets of contacts or relationships with others through which individuals maintain a social identity and receive ideas, information, services, social support, and the opportunity to develop new social contacts. These social networks are also known as lay referral networks and mainly consist of relatives and friends the consumer normally consults for guidance, 's choice of Below is the list of social and behavioral factors that affect consumer choice for medication. These are: Consumer mindset Mood of a patient Personality of a patient Attitude of a patient Previous experience Expectations Motiva Lai tie ion Knowledge about symptoms Drugs-related information Drugs’ availability Advertisement through media Lay referral network Healthcare professional advice Accessibility of drugs ‘pharmacyexam.comReference Guide for Pharmacy Management Krisman and Pharmacoeconomies 2, Different Models of Patient-Practitioner Relationship| ‘There are three different models that describe patient-practitioner relationship. They are: Paternalistic model or expert model Social conflict model Engineering model Paternalistic model or expert model: It is the oldest model. This model assumes that healthcare providers will make all major decisions for the patient, and the patient has to rely and obey the decision of the practitioner. Proponents of this model can often be detected by phrases such as “speaking as your physician, I believe you should. Social contract model: This model believes and focuses on the need for genuine human interaction in the patient-practitioner relationship. This model assumes the ‘mutual participation (from patients and prescribers) in the decision making process. Engineering model: Under this model, a prescriber takes no responsibility for the final health-related decisions of his patients, Health professionals who adopt this model view themselves as scientists, and believe they deal only with facts. The health professional goal under this model is to present all the facts to their patients so that patients make their own decisions about the best course of action to take. Expert Model Patient Should Respect @ Health Professionals Make S, And Obey Pescrbers All Decisions De Paternalistic Model el Health Professional And Patients I —_> Socal Contract Mode ‘Mutually Make Decisions © Health Professions Final Decisions Present All Facts 5 MustBeTaken EngineeringModel ————> topatientsTo Take By Patients. Decisions (Figure 1.3) www.pharmacyexam.com 2Reference Guide for Pharmacy Management and Pharmacoecono Krisman Szasz-Hollender Model of Doctor-Patient Relationships Three other models were presented by Thomas Szasz and Mark Hollender. y are 1 Activity-Passivity Model 2. Guidance Corporation Model 3. Mutual Participation Model a ity Model: The social prototype of this model is one of parent to infant. The health professional role is somewhat like the parent in this model and the patient represents the infant The physicians take charge and make decisions to provide optimum care to patients. Treatment takes place regardless of the patient’s wishes. In most cases, the patient is not aware of what is happening to him or her, and is unable to participate in the deci sion making process. For example, a patient has an acute life threatening trauma, severe bleeding, di coma or heart strokes. 2 Guidance-Corporation Model: This model represents the relationship of a parent to an older child or an adolescent. The physician guides a patient as to what to do, and the pati t is expected to cooper- ate and comply with the physician’s advice and decision, In this model, a patient is aware of what is goit yz bone on and is capable of making and sions. This model works best for patients with acute infections, broken or early stages of diagnostic chronic disease. a 1g de ani It is the prototype af the social contract model ‘The physician’s and patient’s role is somewhat similar to adult-adult interaction. Under this type of model, a patient takes the full responsibility of his or her own welfare, Patients suffering from chronic illnesses such as diabetes, arthritis, or hyper- tension and patients with psychological problems, fall under this model www.pharmacyexam.com 3Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics sayRepe een ayaeye A Model for Analyzing the Medication Use Process This model was first proposed by Anderson and Newman. This model cons three stages. These are: Predisposing factors Enabling factors Need for care variables Predisposing factors: These factors are those which make a patient think to buy a medication. For example, Third-Party insurance coverage may affect the patient’ thinking about buying or purchasing a particular product. A list of predisposing factors: Doctor Pharmacist Age of a patient Sex of a patient Media exposure Marital status of a patient Family background of a patient Cost of medication ‘Third-Party coverage Enabling factors: It is the next step to buy a particular drug or product once the predis- posing phase is over. A list of enabling factors: Doctor Pharmacist Family background of a patient Education of a patient Severity of symptoms Income status of a patient ‘Third-Party coverage Need for care variable: This is an important factor to understand the medication use process of patients. According to Verbrugge, sick people would use medications and people who are sick would not. This statement is supported by the fact that every sickness cannot be easy to diagnose. ‘www.pharmacyexam.com aMReference Guide for Pharmacy Management Krisman and Pharmacoeconomics Noncompliance and Factors Affecting Noncompliance What is noncompliance and why is it so important? Ina simple term, noncompliance means a patient’s resistance to treating his underly ing disease. This could range from not filling prescribed medications to avoiding visiting a physician’s office. It is important to identify noncompliance and treat it correctly. For example, a patient spends time and money to see a physician, obtain a diagnosis and a prescription, and then either not have the prescription filled at all (initial compliance) or not taking the medication properly Noncompliance costs the healthcare industry more than $500 billion annually. For example, a patient is suffering from hypertension and may not regularly take his medicine, and end up in the emergency room. Thus by not comply with the prescribed therapy, a patient may increase the cost and burden on the healthcare industry, Th fe are four forms of compliances. These are: Initial compliance Partial compliance Compliance Hypercompliance Initial compliance: This occurrs when a patient receives a prescription from a pre~ scriber, and transfers it to a pharmacy, but never picks up the filled prescription from the pharmacy Partial compliance: The process of taking a prescribed and dispensed medication at a level less than the prescriber or dispenser intended Compliance: The process in which a patient sticks to and follows a prescribed and dispensed regimen closely, as the prescriber or dispenser intended. Compliance may also be refered as therapeutic end point (e.g. by taking a diabetic pill regularly {com- pliance}., a therapeutic end point can be achieved {normal blood glucose level}), Hypercompliance: The process in which a patient takes a prescribed au regimen at a level over or above the recommended and intended dosing intervals prescribed and dispensed by healthcare professionals. d dispensedReference Guide for Pharmacy Management Kerisman and Pharmacoeconomics Pepe wens Detection of Noncomplhiance Self-reports and interviews with patients are the most common and simplest methods for determining compliance with therapy. Noncompliance can be detected two ways: Indirect methods Direct methods Indirect Assessment for Detecting Compliance: Patients’ self-reports Therapeutic outcomes Physician estimates (avoiding physician's visit) Pharmacist estimates (medications not refilled and picked up by a patient) Family interviews Direct Assessment for Detecting Noncompliance: Blood serum assays Urine assays Noncompliance rates for specific conditions Conditions Noncompliance rates Arthritis 5510 71% Diabetes 40 to 50% Hypertension 40% Epilepsy 30 to 50% Asthma 20% Contraception 8% ‘The most commonly stated reasons for noncompliance: Statements {% of Total Forgetfulness Side effects Drug percieved as not necessary Confusi Cost www.pharmacyexam.comReference Gi ide for Pharmacy Management Krisman and Pharmacoeconomics 6 10, Factors Affecting Noncompliance Patient's age: Elderly people have a lower compliance rate compared to young people, Patient's sex: Women have a higher compliance rate compared to men. Patient's education level: An educated patient seems to be more complied compare to an uneducated patient. Patient's family background Dosage form of a drug: A pill or an oral solution has a hi pared to a parenteral dosage form. ier compliance rate com- A number of drugs: As a number of drugs in regimen increases, the compliance rate dect Medication regimen: A once daily drug regimen has a higher compliance rate than an every 4 to 6 hours drug-regimen. Type of illness Patient-prescriber relationship Patient’s nature: ‘The perceived importance of the drug is more important than the drug itself Prescription Errors and Pharmacist Errol According to an IOM report, an error is defined as the failure of a planned action to he completed as intended (e.g. error of execution) or the use of a wrong plan to achieve an aim (¢.g. error of planning). Thus an error may result from actions that do not go as intended, for example correctly reading a prescription but dispensing th wrong dose of the dru; makin or where the intended action is the wrong one, for example in incorrect recommendation. According to Abood, dispensing errors are classified in two different categories: Mechani pros dispensing error: ing of the prescription. t is an error that may occur in the preparation or www.pharmacyexam.com 376. Reference Guide for Pharmacy Management and Pharmacoeconomics Factors Affecting Noncompliance P: nnt’s age: Elderly people have a lower compliance rate compared to young people. Patient’s sex: Women have a higher compliance rate compared to men. Patient's education level: An educated patient seems to be more complied compare to an uneducated patient Patient’s family background. Dosage form of a drug: A pill or an oral solution has a higher compliance rate com- pared to a parenteral dosage form. A number of drugs: As a number of drugs in regimen increases, the compliance decreases, Medication regimen: A once daily drug regin every 4 to 6 hours drug-regimen. has a higher complian e rate than an Type of illness Patient-prescriber relationship Patient’s nature: The perceived importance of the drug is more important than the drug itself Prescription Errors and Pharmacists’ Responsibility ‘ording to an IOM report, an error is det ined as the failure of a planned tion to be completed as intended (e.g. error of execution) or the use of a wrong plan to achieve an aim (e.g. error of planning). Thus an error may result from actions that do not go as intended, for example correctly reading a prescription but dispensing the wrong dose of the drug; or where the intended action is the wrong one, for example making an incorrect recommendation. According to Abood, dispensing errors are classified in two different categories: Mechanical dispensing erroi processing of the prescription. + It is an error that may occur in the preparation or www.pharmacyexam.comReference Guide for Pharmacy Management and Pharmacoeconomics 2. Judgmental dispensing error: It is an error of discretion in counseling, screening, or patient drug monitoring. * An analysis of malpractice claims suggests that mechanical errors account for 86% of liability claims. The majority of claims are associated with the wrong drug being dispensed. * workload issue is the primary cause for making the error. It has been found that (60% of pharmacists dispensing more than 100 prescriptions per day reported having 4 made an error, * The greatest risk (for error) was felt by pharmacists working in mail order pharmacies, traditional chains, and hospital pharmacies, followed by individual community base pharmacists. * The prescription volume is cited as the most significant factor in the dispensing errors. In one survey, most pharmacists agreed it was safe to dispense 17 prescriptions per hour or 150 prescriptions in a 9-hour shift. * —Abood has also proposed a list of “stress reducers” that might reduce pharmacist error ‘The list of suggestions includes: 1. A pharmacy must provide a comfortable waiting area for patients in order to reduce “patient pressure” on pharmacists. must encourage the use of electronic devices such as faxes and voice mail 2. Apharma in order to minimize the number of interruptions and distractions. 3. A pharmacy must encourage the physician to use electronic prescribing in order to reduce handwritten errors, 4, Apharmacist must also adopt the habit of counseling. This will give him a break from routine dispensing. Abood also added that pharmacists must use the “show and tel” technique during counseling, where the pharmacist shows the medication to the patient while asking the patient pertinent questions, such as how the physician advises you to take medications or for what purpose he prescribed this medicines to? These maneuvers will help the alert pharmacist detect an error before the patient leaves the pharmacy. States Involvement in Reducing Dispensing Errors Due to increased incidences of dispensing errors by pharmacists, many states and the federal government have proposed institutional programs and regulations to address the impact of errors. www.pharmacyexam.comReference Guide for Pharmacy Management and Pharmacoeconomics Krisman For example, Florida state has emphasized an educational approach. Under this n regulation, no new pharmacist will be granted a | nse will be renewed unless an approved 2-hour course on medication errors has been completed. vense and no li ut state is the perfect example in this matter. According to new Connecticut pharmacy law, each pharmacy must post a sign in a conspicuous location, and also include a statement on the bag containing the prescription that: “If you have a concern that an error may have ‘occurred in the dispensing of your prescriptio ct the Department of Consumer Protection Drug Control Division.” A phone number to contact the institution must be provided. Many states are also trying to establish error-reporting systems. Conne ou may cont In 2001, Maryland state passed a patient safety act. Under this new act, a pharmacist has to follow certain new regulations in order to minimize dispensing errors. These new regulations are: 1. Pharmacists must establish methods to educate patients in preventing medication errors. 2. Pharmacists must ensure that all staff receive an annual education in prevent and defining “high-alert” medications. errors, 3. In addition to these rules, the state is also expected to develop rules requiring hospitals to report all medical errors resulting in serious harm. In June 2002, California passed new state regulations requiring each pharmacy to establish a quality assurance program prevent to medication err is defined as any variation in the prescription order that may harm a patient. The quality assurance program documents and assesses all medication errors to determine their course and an appropriate response. This is to be used to develop pharmacy systems and processes to prevent future errors. An investigation of the error by the pharmacy is to commence no later than two business days after the error is discovered 's. A medication error ‘The Washington State Department of Health passed an interesting proposal that the legislature should ban handwritten prescriptions by 2005 North Carolina State Board of Pharmacy believes that work load issue is major root cause of dispensing errors. The Board has advised all management staff of pharmacies to reexamine their policy as workload increase. Through a new regulation, the board set 150 prescriptions per pharmacist per day as the limit for safe dispensi 8 www.pharmacyexam.com 9Reference Gi je for Pharmacy Management Krisman and Pharmacoeconomics * Adverse Drug Events Adverse Drug Event (ADE): An adverse drug event (ADE) injury resulting from the use of a drug. ADEs can be further clas an be defined as any ied as follows: Medication error: Any preventable drug event that may cause or lead to inappropri: ate medication use or patient harm. Adverse Drug Reaction (ADR): Any response to a drug that is noxious and unintended and that occurs at doses normally used in humans for the prophylaxi diagnosis, or therapy of disease. therapeutic failure: A suboptimal response to the drug therapy. Adverse drug withdrawal event: A noxious or unintended response that occurs when a drug is discontinued. Accidental/intentional overdose: A adverse drug event due to a supertherapeutic level of a drug, either accidental (child poisoning) or intentional (suicide attempt). [Quality and Improving Quality of Care What is Quality? According to Merriam Webster's College Dictionary, quality is defined as “degree of excellence” of “superiority in kind.” This concept of quality is not only limited to healthcare. As consumers we always look for quality products, whether it is selecting ‘a restaurant for dinner, buying clothes or reserving airline tickets for travelling. We always gather the information available for a particular product and justify its price with the quality of the product. ‘Components of Quality in health care setting Appropriateness of therapy (i.e. the right care is provided at the right time) ‘Technical excellence (i.e. care is provided in the correct manner) Accessibility of care (je. care can be obtained when needed) ‘Acceptability of care (ie. patients are satisfied with provided care) www.pharmacyexam.comReference Guide for Pharmacy Management and Pharmacoeconomics Krisman ual ity of Care ys. Quantity of Care ‘There are many times quality of care is confused with quantity of care. More care does not necessarily equal better care. However, when rating for quality of care, uninten- tionally we always look for quantity of service (i.e. how many services are received.) The relationship between quantity example, there are times when the qu inadequacy. \d quality of care is complex and also unique. For lity of care is rated poor because of quantitative ‘The perfect example of this would be the failure to complete the vaccination series. In order to receive successful therapeutic outcomes, and thet od quality of care, ‘one must complete the whole set of vaccinations. Thus in this case quantitative inad- equacy may lead to poor quality of care. In contrast, care can be excessive and even harmful. Such care is not only costly but of equal or lower quality. For example, the care that may be included with annual pap smears and routine use of fetal sonograms in patients with low risk of pregnancies. These types of cares are unnecessary, and may increase overall expenditure of healthcare. Although they are used excessively but carry v y little risk. Other care such as routine chest x-ray examinations and annual dental x-rays are not only used excessively, but they are associated with potential dangers due to exposed x- radiations. These types of care are used unnecessarily, and not only that, they are extensively harmful to patients. Such care must be avoided, and used only when they are really required. This way the quality of care can be improved and cost of healthcare can be controlled. In addition to unnecessary and excessive care, there is inefficient care. In such cases, reducing the costs of care can be achieved by producing it mote efficiently; not by reducing the quantity or intensity of care but by substituting with another alternative. Substitution of a nurse practitioner for a physician or the use of ambulatory rather than inpatient surgery are two examples where good quality can be maintained while reducing costs. How to measure the Quality? ithering information The quality of healthcare can be measured by approaching and g about its structure, process, and outcome. www-pharmacyexam.com 4Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics ns Structure: According to Donabedian, a structure has been defined as “the relatively stable characteristics of the providers of care, of the tools and resources they have at their disposal, and of the physical and organization settings in which they work.” Examples of structures are board certification of physicians, nurse/bed ratios for hospitals, availability and accessibility of facilities, availability of laboratory services for HMOs, etc Structure is an indirect measure of quality. Itis useful to the degree that it can influ- ence the direct provision of care. Process: It concerns the set of activities that go on between physicians and patients. Process is what is done to patients. Outcomes: It is defined as a result of an implemented activity. In this case, it would be the therapeutic result of an intervention, It normally helps to find out how an plemented therapy works on patients. The Causal Model For Quality The causal model helps in assessment of quality. Normally, a structure influences the process of care, which in turn effect the outcome of care. It has been stated by many sociologists that the application of the appropriate process of care can maximize the therapeutic outcome of the care. ‘The most important thing is the link between structure, process and outcome. Many research methods have been developed to identify and justify these links. For ex- ample, are board certified physicians (structure) more likely to make appropriate use of laboratory tests (process)? And does the appropriate utilization of the laboratory tests have a positive effect on patient recovery (outcomes)? Structural indicators (e.g. nurse/bed ratios) are easy and inexpensive to access, whereas information on process (e.g. prescribing patterns of physicians for laboratory tests) and ontcome of care (the effect of appropriate utilization of laboratory tests on patient health) are expensive, and often unavailable to obtain. The Casual Model will help us to identify alternative treatments with less side effects and the same therapeutic outcomes of an intervention (therefore more quality care). For example, in one study, family physicians were found to be less likely than obste- tricians to use epidual anesthesia, cesarean sections, and other interventions with low risk deliveries, and these differences in the process of care did not affect clinical outcomes of care (safe deliveries). Thus family physicians (structure) without use of epidual anesthesia (process) may provide the same therapeutic outcome (safe delivery) and thus, this shows the better quality of care compared to obstetricians (another structure). www.pharmacyexam.com ryPrinciples of Pharmacoeconomics— Reference Guide for Pharmacy Management and Pharmacoeconomics www.pharmai ECHO Model and Economic Outcomes ECHO Model: It is also known as the Economic, Clinic, and Humanistic Outcomes Model. This model normally relates to a disease and therapeutic outcomes (related to disease) to assist physicians in the decision-making process. Economic evaluation: It is a process by which costs and consequences related to health: \dustry can be assessed. The most important step in conducting a economic evaluation is to ind the prospective from which the study was conducted and the audience for which it was intended. For example, an economic analysis of two antihypertensive medications provide the same level of therapeutic benefit. However, drug A is significantly less costly than drug B. The another important difference between these two drugs are their side effects profiles. Drug A has a major side effect of causing arrhythmia, whereas drug B is devoid of such adverse effects. From the perspective of third party companies, drug A may be the better choice due to low cost, however from the patient's perspective-whose out of pocket costs are minimal-drug B would be a better choice due to the low side effects profile. Therefore, itis really important to find out the perspective from which the result will be viewed. ‘osts and Consequences Associated with Economic Analysis Cost associated with economic analysis are divided into four major groups: Direct cost Direct nonmedical cost Indirect cost Intangible cost Direct cost: These are expenses directly associated with medical care due to illness. Examples of such costs are Medi Physician’s visit expenses Hospitalization costs Laboratory and diagnostic test expenses Adverse drug reaction treatment costs Specialist consultation cost tion related costs exam.com 44Reference Guide for Pharmacy Managem aces Examples 1. Direct medical costs Drug: 2. Hospitalization 3. Laboratory tests r 2. Direct non-medical costs 1. Transportation 1. Reduced productivity 3. Indirect costs y 2. Days lost from work 1. Pain 4. Intangible costs | o 2. Suffering Outcomes Examples 1. Economic outcome 1. Co: 2. Clinical outcome 1. Blood pressure 2. Blood glucose 3. Mortality 4, Number of reoccurences 5. Number of disease free patients 3. Humanistic outcome Quality of life 2. Patient satisfaction 3, Patient preferences (Table 1.1) Cost Method- lethod-Type mee Outcome Measure Cost of Iliness $ NIA Cost Minimization Analysis $ POT ee blood pressure in mmv/hg Cost Effectiveness Analysis | $ Clinical (physical units) Quality Adjusted Life Years Cost Utility Analysis y ata oaaial Gained (QALY) Cost Benefit Analysis | — $ $ www.pharmacyexam.com (Table 1.2) KrismanReference Guide for Pharmacy Management Krisman Pharmacoeconomics 2 nonmedical costs: They are primarily related to out-of-pocket expenses, incurred by patients during illness. Examples of such costs are: a Transportation costs to hospitals or clinics b. Accommodation costs for family during major illness c. Costs related to meals and dining during hospitalization Indirect costs: These costs are associated with morbidities and mortalities due to illness. Examples of such costs are: a. Loss of work due to illness b. _ Lost earning due to permanent death 4. Intangible costs: These types of costs are a result of psychological factors such as pain, side effects of treatments, stress, or depression due to illness. Examples of such costs are: 1. Quality of life 2. Psychological factors Consequences / Benefits Similar to costs, benefits or consequences can be subdivided into three major cat 1 Direct benefits Indirect benefits 3. I ble benefits Direct bs reduction of health-r ‘These would include prevention of future illness and thereby a ated expenses, a reduction of insurance premiums, and a redue- tion of healthcare-related services (e.g. hospitalization, physician's visit). 2. Indirect bens These would include an avoidance of physical disability or death. Intangible benefits: These would include absence of pain and an improved quality of life.7 Use Drug B as per Cost Minimization Analysis (CMA) =ean | Clinical Units (CEA)] [Economic Units (CBA Specific units Guide for Pharmacy Manage Ries and Pharn ‘Comparison between Phar Treatment A (Innovative and expensive) versus Pharmacological Treatment B (reference standar If Drug Ais not If Drug Ais far more effective more effective than Drug B than Drug B es Measure and compare Drug A effectiveness Using ] [ Utility Units (CUA) for the disease under investigation also known as Classic CEA www.pl Life Years Gained also known as Lifetine CEA (Figure 1.4) 47Reference ¢ nd Phar B. cy Management Krisman Cost/Benefit Valuation Assigning costs: are identified during an economic evaluation study. To assign a dollar value to direct costs is simple and straightforward, but assigning a dollar value to indire benefits is even more complex. he next step is to assign a dollar value to all costs and benefits that costs and There are two important methods which help to assign a dollar value to indirect costs and benefits. These The human capitol approach method The willingness-to-pay method The human capitol approach method: In this method, the value of human work and life is calculated by the economic productivity of the individual. This method allows us to calculate and correlate actual market income of an individual or groups of indi- viduals with lost resources and profit related to illness. For example, under this study. if an average annual income of a pharmacist is set at $70,000, then the cost or ex- penses related to missing work due to illness can be calculated. The only disadvantage associated with this method is that when equati or assigning rket income for a particular profession, the market price does not reflect the true value of an individual. For example, what if an individual is a pharmacist manager and making over $120,000. The another disadvantage of this method is that it does not consider children, elderly, or full-time homemakers when conducting a study. ‘The willingness-to-pay method: This method assigns a value to benefits and indirect costs by determining what the individual is willing to pay for preventin ving positive effects of an intervention. The disadvantage associated with this method is that there is always conflict between the price people are willing to pay and the price they are actually able to pay. ng negative or Discounting: When assigning a dollar value to costs or benefits, one must consider the effect of time on such costs or benefits. Th valued lower than the present costs and benefits since a dollar invested today is worth more than a dollar invested in the future. future costs or benefits before being incorporated into the economic analysis. future costs and benefits should be herefore, it is essential to discount the The ‘outcomes or costs should be discounted, and what discount rate should be used? Most economists select the discount range from 3 to 6%. By using the following equation, one can calculate the discounted values, is another question that arises dun relat alysis: Which type of heal www.pharmacyexam.com 48Reference Guide for Pharn and Pharmacoeconomics Krisman PV =FCx(1+DR)* where, PV FC = future cost DR = discount rate n= the number of years cost will be incurred in the future present value For example, if we want to implement a new program that will take a period of 4 years with a cost of $10000 per year. By using a discount rate of 6% (0.06), the present value of the plan would be PV = 10,000 x (1 + .06) PY = 10,000 x (1+ .06) PV =$ 9433 (for the first year) PV = $ 8890 (for the second year) Thus, with a discount rate of 6%, the cost incurred would be $34650 ($9430, $8890, $8400, and $7920, for each year respectively. Without using an equation, the program cost would be $40,000, Sensitivity Analysis alysis: uncertainty regarding the correct value used for a given cost or benefit or whether the The major problem facing by a study of economic analysis is an correct discount rate was used. To eliminate this problem, a researcher comes up with sensitivity analysis. For example if original analysis used a discount rate of 4% for calculating rates (2 to 6%). For each discount rate, a sensitivit cost or benefit, than a sensitive analysis would use the range of discount analysis would obtain cost or benefit and compare those values with the original analysis (4% discount rate). If the difference between values obtained from the original analysis and sensitivity analysis is minor, a researcher would be confident that the discount rate used originally is the most appropriate. However, if there is a significant difference between the two values, a researcher should reevaluate the whole analysis method. Types of Economic Analysis * There are five major methods to conduct economic analyses: 1. Cost of Illness Analysis 2. Cost Minimization Analysis 3. Cost Benefit Analysis 4. Cost Effective Analysis Cost Utility Analysis 49 www.pharmacyexam.cReferene Guide for Pharmacy Management Krisman and Pharmacoeconomics Cost of Illness Analysis: This type of evaluation method includes all costs and consequences related to treating a particular disease. It is really important to conduct Cost of Illness Analysis before initiatit further economic evaluation. ‘Advantages of using Cost of Illness Analysis This method allows researchers to collect and assess disease specific data, It provides a true definition of the particular illness. It provides researchers information about epidermology and potential outcome of illness, and the consequences associated with the illness, The perfect example of a cost of illness study would be a large multicenter survey conducted to obtain data regarding healthcare utilization for people suffering from diabetes, This example represents the analysis that was conducted from the perspec- tive of the healthcare provider. The types of costs included in this type of survey would be: In-patient hospitalization costs, Home healthcare related services costs Prescription costs Long-term care costs Outpatient visits costs Cost Minit n_ Analy associated with two or mor is: This type of analysis is used to examine the cost ‘alternatives that are clinically equivalent in terms of outcomes, Equivalency must be established before conducting an analysis. Furthermore, equivalency studies must include not only therapeutic outcomes but also the type of adverse effects associated with therapies. Cost minimization can be calculated by using the following formula: Cost (dollars) of intervention A <, =, or > Cost (dollars) of intervention B. An example of ac’ with the same drug but different routes of administration. In both cases, if the thera- peutic outcomes as well as the incidence and type of adverse reactions remain the st minimization analysis would be a comparison of two treatments same, then one should chose the less expensive and laborious route of administration of the drug. Cost-Benefit Analysis: It is a type of study in which all costs, outcomes or conse- quences are expressed in monetary terms. This type of analysis is conducted when two competing therapies or programs have different outcomes. All costs and benefits related to both therapies are compared in terms of dollar value. The only disadvantage of this analysis is that it is difficult to assign dollar values to therapeutic outcomes. For example, assigning a dollar value to quality of life or pain and suffering www.pharmacyexam.com 500) Krisman wrw.pharmacyexam.com Using Pharmacoeconomic Analysis study for two therapies for formulary decision Ifthe new therapy Ifthe new therapy seems to have a more seems to have the same efficacy and safety efficacy and safety compared to old therapy compared to old therapy ' ; le |: ‘\ , = oy | Do More expensive Less expensive compared to | compared to 1. Cost Minimization old therapy } | oldtherapy Analysis (CMA) Vv - Include new therapy in formulary Do te 1.Cost Effective Analysis (CEA) 2.Cost Utility Analysis 3.Cost Benefit Analysis (Figure 1.5)Reference Guide fe harmacy Management Krisman, and Pharmacoeconomics ‘The following equation can be used for cost-benefit analysis: Cost-Benefit Ratio = Cost (S) / Benefit ($) Net Benefit = Benefit ($) - Cost ($) The perfect example of a cost-benefit analysis would be for a small clinical institution with very limited financial resources to chose from one of two programs, each used to treat different diseases. In this type of analysis, the researcher has to compare all costs that may have incurred for each program verses benefits in terms of morbidities and mortalities. The program with more net benefit should be implemented. Cost-Effective Analysis: In this type of are simultaneously measured-costs in monetary terms (dollar value), and conse- quences (outcomes) in terms of an obtained unit of effectiveness. nalysis, costs and consequences (outcomes) This type of analysis differs from the cost-benefit analysis in that the therapeutic outcomes or consequences are measured in nonmonetary terms, Cost-Effective Ratio = Cost ($) / Therapeutic effect (natural units) An example of a cost-effective analysis would be treating hypertensive patients with two different drugs, drug A and drug B. Drug A reduces an average blood pressure by 20 mm/hg, and drug B lower an average blood pressure by 40 mnv/hg. If both drugs cost the same, than drug B would be a better choice to treat hypertension. There are two types of Cost Effective Analysis (CEA) Classic CEA Lifetime CEA Classic CEA: atment (usu in this type of CBA, the new treatment is co lly, th ms of ¢ npared with the standard u best available treatment in clinical practice, e.g., the gold standard) in t nical and economic value. If the treatment has just been launched on the market, and a study cannot be carried out in the practice setting, effectiveness data is obtained from published trials. In this situation, the most power- ful trials (e.g., the one with the strongest methodology as well as with the largest number of patients) should be considered. An alternative would be to use the results of a meta-analysis comprising all the concluded relevant trials on the issue. For example, one method frequently used is to normalize both costs and outcomes values for a hypothetical population of 100 patients. If, for instance, the costs of the new treatment A is $7,000 and the cost for treatment B is $3,000 for one year, the cost for 100 patients is $70,000 and $30,000, respectively. www.pharmacyexam.com 52n Reference Guide for Pharmacy Management Krisman and Pharmacoeconomies Using the same methodology, if the new treatment A reduces the recurrence rate from 39% to 15% of the standard treatment B, this means that the new treatment avoids a total of 24 recurrences for 100 patients. This constitutes the clinical benefit. It is important to point out that both costs and outcomes need to refer to the same time frame, in this example, one year. Finally, to calculate the CER, the ratio between incremental cost in the numerator ($40,000) and incremental benefit in the denomina- tor (24 recurrences) is calculated. The result is about $1,700 spent for each avoided recurrence. ‘The above procedure is a very simplified example of short-term CEA over a one-year time period. The major simplification is the time frame considered. The choice of one year makes the calculation easier, but it excludes the contribution of significant events occurring later in the disease and treatment process, related to both costs and out- comes. Generally, these simplifications may be more or less acceptable, depending on the problem under study 2. Life CE, eutic problems which require long term efficacy evaluations often correspond to the use of a methodology which measures the survival length on a lor basis and which synthesizes this data through life table curves. This methodology ely applied in oncolog: ter The main difference betwe a classic CEA and a lifetime CEA is in the methodology of computing the benefit. The denominator is the gain in terms of survival (e.g., the incremental survival). Thus, the results of the CEA is expressed as cost per year of life saved. It is, in fact, demonstrated that the survival length of a group of patients may be determined by the calculation of the area under the curve of the actuarial survival curve as a function of time (AUC). The AUC val patient-years or person-years) li ie corresponds to the years of life (or ed by the patients. The incremental gain in years of life is calculated from the difference between the two AUC values. (Cost for tr 100 patients with Drug B) Life time CEA = SUES i ‘Yeats of life gained using A instead of B ‘The only disadvantage associated with Cost Effective Analysis is that one cannot compare two different outcomes. For example, one cannot compare therapeutic out- comes in mm/hg for treating hypertension with mg/dl of total cholesterol, www.pharmacyexam.comReference Guide for Phi macy Management Krisman and Pharmacoeconomics 1 3 Cost-Utility A\ Itis defined as a method where costs are measured in dollar amounts and consequences are measured in terms of quality of life. Cost effective analysis and cost utility analysis are almost same, the only difference betwe aoe outcomes in natural units (e.g. reduction in blood pressure or cholesterol) while nn them is the unit of consequences or therapeutic outcomes. The former me: the latter relies on quantity-adjusted life gain years. Cost-Utility Ratio: Costs ($) / Utilities ( eg. QALY, Quality Adjus Life Years) QALY is the number of years at full health compared to the number of years illness. {year of perfect health would be calculated as 1.0 measured on QALY, and death ‘would equal 0. For example, six years of perfect health would be counted as 60 QALY, where as six years of living with cancer, with each year havin utility of 0.4, would be valued at 2.4 QAL’ Now, utilities for a particular disease (in our example, it is cancer) can be calculated by the following methods: Throw Through the literature ‘Through actual measurement h estimation Physicians, specialities, researchers or special panels can assign the utility value fora particular disease. There are three instruments that help to measure utility values. These are Rating scale Standard gamble Time-trade off The major advanta; 2 of a cost-utility analysis is that itis the only analysis method which calculates consequences or outcomes in terms 0 associated with this method is a lack of uniform or st ized methods to calculate utility values for diseases. f the quality of a patient’s life. ndard- The only disadvantagi www.pharmacyexam.com 54Referes de for Pharmacy Management and Pharmacoeconomics Differential Analysis Differential analysis: It is a method of study in which a pharmacy can analyze the financial future of an organization if alternatives have been implemented. In simple term, it rev als how a new change in the pharmacy will affect its current business. For example, Manan Care Pharmacy has an offer to join a NY-Third Party prescription program, which will offer their plan members prescription-related services. * If Manan Care Pharmacy accepts this offer, it will bring an additional 10,000 prescrip- to the pharmacy. The NY Third Party prescription plan proposes a flat fee of $3.50 per prescription to Manan Care Pharmacy. Under these circumstances, the differential analysis will help Mana tion per y Care Pharmacy to make a decision as to whethe accept an offer or not. ‘The only thing Manan Care Pharmacy should be concerned with is that a $3.50 dis- pensing fee per prescription would it be sufficient to cover the pharmacy expenses (due to an increase in pre: cription volume) and genrate reasonable profits? To calculate whether a particular change may or not, th ide the business in a positive direction ¢ types of costs should be estimated. These costs are: Differential costs 1 2. Sunk costs 3. Opportunity costs 1. Differential costs: These costs are expenses that may be incurred due to a new change applied to the pharmacy. For example, if Manan Care Pharmacy accepts the offer presented by the NY Third Party prescription program, it will increase its yearly prescription volume by 10,000. If the pha technicians to cover this additional volume, the cost related to this should be classified macy has to hire more pharmacists or as a differential costs, Sunk costs: These are costs that have already been incurred. For example, Manan Care Pharmacy joins Macke Wholesale Drug Groups, Inc., which offers a 10% dis- count on AWP with an annual registration fee of $10,000. Soon after joining Macke, Manan Care Pharmacy finds another group which offers a 15% discount on AWP with an annual fee of $5000. In this scenario, the $10,000 which is paid to Macke Whole: sale Drug Groups would be considered as sunk costs, 3. Opportur available resources for other serv costs: These are hypothetical expense that For example, Man: small portion of the pharmacy space to educate and counsel patients. By providing this the pharmacy will earn a gross profit $20,000 per year way incurred by using Care Pharmacy uses a www.pharmacyexam.com KrismanReference Guide for Pharmacy Management Krisman and Pharmacoeconomics If Manan Care Pharmacy uses the same space to sell herbal products, it would bring a profit of $10,000 per year. Hypothetically, Manan Care Pharmacy gives up an oppor- tunity to earn $10,000, or loses $10,000 worth of business. Therefore, $10,000 would be defined as opportunity costs. There are four important steps in conducting a differential analysis. These are: Identifying differential revenues Identifying differential costs Calculating the contributional margin Considering non-quantitative factors We will use two sets of examples to explain this. In the first situation, assume that Manan Care Pharmacy will gain 1000 prescriptions per year by accepting the NY Third Party prescription program. he NY Third Party will pay the Manan Care Pharmacy a flat fee of $3.50 per prescription. Using this data, a differential revenue (DR) for Manan Care Pharmacy would be DR = 1000Rx x $3.50 DR = $3500 We will now calculate the cost that may be incurred due to increase in prescription Since the prescription volume of the pharmacy increased by only 1000 prescriptions per year, Manan Care Pharmacy will not have to hire additional pharma- cists or technicians. The pharmacy’s manager anticipates that there will be a dollar cost per prescription. Therefore if dispensing 1000 prescriptions per year, a differential cost (CS) would be: volun DS = 1000 Rx x $1.00 DS = $1000 Therefore, the contribution margin (CM) for Manan Care Pharmacy would be: CM = DR - DC CM = $3500 - $1000 www.pharmacyexam.com 567, Reference Guide for Pharmacy Managems and Pharmacoeconomics Krisman Thus by accepting an offer from the NY Third Party prescription plan, Manan Care Pharmacy will make net profit of $ 2500 per year In the second situation, assume that by accepting the NY Third Party prescription pla offer, the prescription volume of Manan Care Pharmacy will increase by 20,000 prescriptions per year. Using the same reimbursement rate, the pharmacy differential revenue would be: DR = 20,000 Rx x $3.50 * Due to a large increase in prescription volume, a pharmacy has decided to hire two full-time technicians and one part-time pharmacist. The approximate costs to hire these new members would be $50,000 per year. * Using the same cost of $1 per prescription, the total differential cost would be: DC = $50,000 + (20,000 Rx x $1.00) DC = $50,000 + $20,000 DC = $70,000 * The new contribution margin would be: CM = DR - DC CM = $70,000 - CM = $0.00 Therefore in this case, Manan Care Pharmacy will not have any incentives if it accepts the NY Third Party prescription plan offer. 56 wrw.pharmacyexam.com 37Reference Gi le for Pharmacy Management Krisman and Pharmacoeconomics we www.pharmacyexam, Considering Non-quantitative factors Even though pharmacy does not perform well financially, a hospital administrator cannot make the decision to close pharmacy solely on the basis of a financial situation, The administrator must take into account other non-quantitative factors. For example, It could be the only pharmacy that provides service in a neighborhood con unity, The closing of the hospital pharmacy may affect the morale of other employees working in the hospital. Decision Analysis n analysis: A technique used to aid decision-making under conditions of inty by systematically representing and examining all of the relevant informa- tion for a decision and the uncertainty around that information. The av are plotted on a decision tree. At each branch, or decision mode, the probabilities of each outcome that can be predicted are estimated. The relative work or preferences of decision-makers for the various possible outcomes for a decision can also be estimated and incorporated in a decision analysis. uncert It is normally used to assist a decision maker to: -d with a decision Identify the available option when fa Predict the consequences or outcomes of each question Assess the likelihood or probability of the identified possible outcomes Determine the value of each outcome Select the decision option that will yield the best result om 58.‘www.pharmacy Reference Guide for Pharmacy Management and Pharmacoeconomics Instruments To Measure the Quality of Lif * The Quality of Life is a therapeutic end point for all diseases and healthcare related procedures, since in the healthcare profession the thing that matters the most is the quality of life provided by healthcare resources. The Quality of Life measuring instruments are divided into two major categories’ 1. Disease Specific Instruments 2 Generic/General Instruments A. Health Profile B, Utility Based Instruments ation in te ted with a particular disease. Th hey provide detail infor and well-being that may be assoc classified into the following categories ns of function- Disease specific (e.g. hypertension, diabetes) Population specific (e.g. elderly, infant) Function specific (e.g. sexual functioning) Condition or problem specitic (e.g. pain) Examples of disease-specific instruments: Arthritis Impact Measurement Scale (ATM Asthma Quality of Life Questionnares (AQLQ) Diabetes Quality of Life (DQOL) Functional Living Index Cancer (FLIC) Quality Of Life In Epilepsy (QOLIE) HIV Overview of Problems-Evaluation System (HOPES) 2 — Generic/General Instrument: As the name su eral instruments put more emphasis on all conditions that have a general effect on quality of life. The gener generic instruments provide a better picture of a disease or condition. The KDQOL (Kidney Disease Quality Of Life) is the perfect example of a general/generic instrument, and it can be further explained by learning profile and utility-based instruments. m.com 59Reference Guide for P' ‘macy Management Krisman and Pharmacoeconomics i Ith Profile: It provides important information on the quality of life or the health status of an individual. The principal advantage of a health profile is that it provides multiple outcome scores which may be useful for predicting the effect of a disease or treatment on an individual’s quality of life. A commonly used profile instrument is the Medical Outcomes Study Short-Form 36 (SF-36). This instrument concentrates on the following areas General health perception Physical functioning Social functioning Role limitations attributed to physical problems Role limitations attributed to emotional problems Bodily pain General mental health Energy/fatigue Health transition Utility-Based Instruments: ents measure the specific patient health states along with an adjustment for the preferences (e.g. utilities) for the health state. The preferences can be measured or assigned through a variety of methods; these methods are: These types of instrun Visual analog scales The time trade-off technique Standard gamble The outcome score of this type of instrument ranges from 0 to 1, and represents the quality of life associated with death and perfect health respectively. That's why utility based instruments are really important for conducting a cost-utility analysis since as discussed previously, the cost utility analysis measures the cost in a dollar amount and. therapeutic outcomes in units such as quality-adjusted life years gain (QALYs). QALYs gain measures both quantity and quality of life. This can be an important outcome measurement for a disease such as cancer where the treatment itself has a major impact on a patient’s functionality and overall wellbeing. To better understand, we can take the following example. Let’s say a patient is suffering from lung cancer. We want to find out and compare costs and therapeutic outcomes (QALYs) for two alternatives, one with surgery option and the other with surgery plus chemotherapy option, The patient will gain 3 years (unadjusted) of his life if he receives the surgery and adds chemotherapy agents in his regimen, however the Quality of Adjusted Life Year (QALYs) gain would be only 0.5 (since the addition of chemotherapy agents may increase patient's years of life however reduces his quality of life due to serious side effects of the drugs involved). www.pharmacyexam.com ooid Reference Guide for Pharmacy Management and Pharmacoeconomies Now, let's compare the cost associated with both alterna receives the surgery, the calculat in would be $3000 whereas if motherapeutic agents, the cost per QALY gained would be $20,000. Thus maximizing the potential of pharmaceutical care will require that pharmacists understand and be able to address the economic and quality of life implications of therapeutic decisions. e year he receives surgery and uses cl Examples of utility based instruments are the Qual Health Utility Index (HUD, and the Eurogol. y of Well Being Scale (QWB), the Quality of Life and Patient Satisfaction Humanistic outcomes are closely related to individual attitudes and beliefs relating to health and health-related services. Therefore, it is very important to consider psycho- metric properties of instruments that are essential for the successful measurement of humanistic outcomes, Psychometric properties: Psychometrics refers to the measurement of psychological construct such as quality of life or patient satis ction, It is generally associated with the development and testin we can have result predicted by the instrument. Psychometric properties include the reliability and validity of measureme! and validity) have major impact on measurin; of new instruments in such a way that confidence in th s. These two properties (reliability humanistic outcomes. Reliability: It refers to the consistency, stability and reproducibility of results. The extent to Which we are measuring some attribute in a system able way. For an instrument to be reliable its results must be reproducible and stable under the different conditions in which it is likely to be used. Test reliability is decreased by errors of measurement, There are three methods by which the reliability of given instrument can be measured. These methods are: ic and therefore rej Test-retest method Intemal consistency method Inter-rater reliability serve the purpose of an experiment, Since we are measuri retest method: The only problem with test-retest method is that this test will not g humanistic outcomes as our final product, itis really hard to apply this method. For example quality of life iumanistic outcome) is not goi to remain constant over a period of Sww.pharmacyexam.com 61Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics wow.pharm Internal consistency: This method indicates the extent to which an instrument is free from making random error. The degree of internal consistency is indicated by coeffi cient alpha. It can be calculated by using Cronbach's Coefficient Alpha. Values above 0.90 are required for making comparisons between individuals, and above 0.50 are required for comparisons between groups. Inter-rater reliability: The degree to which the measuring instrument yields similar results at the same time with more than one assessor. Validity: It defines the range of inferences that are justifiable on the basis of a measure. It also refers to the extent to which differences in test scores reflect the true differences in individuals under study. Three basic types of validity normally consid- ered are Criterion Content Construct Criterion: It is the degree to which a test predicts some criterion (measure of perfor- mance), usually in the future. To ascertain this kind of validity, evaluators look at the tion betwe: nple, a coll sion test has criterion validity if it can predict some aspect of college performance ( ree completion), correl n the test and the criterion measure. For admis. grades, de; Content validity: This refers to tests such as skills, ability or attainment tests where the domain of items is very defined. A test with good content validity samples adequately from the curriculum or content domain being tested. This kind of validity involves logical comparisons and judgments by the test developers rather than a specific statistical technique. For example, a high school biolc validity if it tests knowledge taken from biology textbooks assigned to students and reinforced by teachers in their instructional program. represents and test has content Constru ity: This refers to whether a test is measuring what it cl sure as judged by accumulated evidence. A variety of statistical techniques can be used to see if the test behaves in ways predicted by the given construct. For example, a new test of computer programming skills would be expected to correlate highly with other valid tests of computer skills. Conversely, this new test would be expected to have little correlation with a different type of test (such as a test of social intelligence) ajide for Phi Reference id Pt Krisman Pricing Strategy for New Products _| strategies are available for selecting prices There are many differ for new products to achieve t types of prici optimum sales. But we will discuss only a few of them. 1, Skimming pricing strategy 2. Penetration pricing strategy 3. Cost plus pricing strateg 4. Competition-base pricing strategy 5. Parity pricing strategy 1. Skimming pricing strategy: It is a type of strategy in which initially a high price is set for a new product to “skim the cream” off the upper end of the demand curve. This strategy is recommended when a company spends a big chunk of money in developing and researching a new product. This strategy is also recommended when the demand ompetition is expected to develop in the near of the new product is uncertain and the future. price should be, the company has to concentrate on To decide how hi ig P the following factors 1.A. Chances of competition entering the market: If competitors are expecting to intro- duce new products in the near future, it would be advisable to keep the skimmi price high, and if competitors are years behind in introducing new products, the low * Price elasticity at the upper layer of the demand curve may also affect the new product Penetration pricing: This pricing strategy is designed to achieve sales-based objev- tives. It is the strategy to enter into the market with a low initial price so th shares of the market can b captured. High price elastic demand is the most important reason for adopting the penetration strategy. This strategy also discour: 2 s competi- tors to enter into the market due to a low profit margin, Cost-plus pricin; in which predetermined profit is added to the cost of the product to determine the product's selling price. The price ca calculated by using the following formula: tis a price fixing strat AVC + FC%) x (1+ MK%) _ where, P=Price AVC = Averag FC% = Percenta MK% = Percentag variable cost ¢ allocation of fixed costs markup a wwy.pharmacyexam.com 63Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics * ‘The problem fac this method is that profit is expressed as a percent of the cost, and t as a percent of the sale. The another difficulty with this method is that the price is lated to demand. For example, if there is a high demand for a particular product arket, the company that uses this method to calculate the price would not be inth able to take advantage of more profit by setting the price hi her in accordance with demand, Competition-based pricing: There are companies who use competitor’s prices rather n the product's cost or demand. A company may set prices below the market, at the market, or above the market depending on customers, image, consumer loyalty and the company’s reputation, Parity pricing: market. It is the The product is priced equivalent to the prevail ost common approach used by firms launching products into already established markets. price levels in the | New Drug ] L Clinical Advantage ao Price at or Below Competitor Price Competition Within Two Ye: [Price at strategy The “positioning it will be most likely to receive a favorable reception compared to competing prod- ucts, refers to placing a product in a particular area of the market where www.pharmacyexam.com 64Since the market is heterogeneous, it is very important to place the new product in the right segment of the market. One should also try to attempt to place a product so that it stands apart from competing brands. Positioning also helps to highlight the product from other competitive brands. It tells what the product stands for, what it is, and how the consumer should evaluate it Positioning strategy can be subdivided into the following s 1, Attribute positioning 2. Price/quality positioning Use/application positioning 4. User positioning Product class positioning 6. Competition positioning Product Repositioning Strategy Very often, a product may require repositioning. This can be occured if The product has been initially placed into the wrong positioning. 2. Another product in the market may enter into the market next to the product, and may adversely affect the market capitalization of an existing product 3. The product original preferences have been changed. 4. New preferences have been discovered which may open the door for new opportunity associated with the product Costs and risks assoc ted with repositioning are really high. To avoid this risks, one aluate and justify product repositioning. Perceptual mapping helps in examining the position of a product should use the techniq of perceptual mapping to relative to competing products, Product Elimin Marketers have believed that products that do not perform well should be eliminated. When a product reaches the stage at which continued support can no longer be justi: fied because its performance falls short of expectations, the product should be pulled out of the market. 64 www.pharmacyexam.com 65Reference Gi le for Pharmacy Management Krisman and Pharmacoeconomics www.pharmac A product in be removed from the mar] Ithas a low profitability. There is a profound decline in sales volum cult to build up. A product may enter into a mature or declining phase of the cycle. A product may have a risk of technology obsolescence or market share that would be too diffi There are three alternatives in the product elimination strategy. They are: Harvesting Line simplification Divestment Harvesting: It refers to getting the most from the product whi is applied to a product or business whose sale volume and market share are slowly declining. It leads to a slow decline in sales. e it lasts. This strategy Harvesting strategy should be used when the following conditions are present The product is in a stable or declining market. The product has a very small market share which is very costly to build up, The product has a respectable market share but it is very expensive to maintain or defend at the current position. The product is not producing a good reasonable profit to even cover the cost of production. The company has better uses for the freed-up resources. ification: It refers to a situation in which a product line is trimmed to a adjusting the number and variety of products or services bei offered. It is a defensive strategy. It is especially useful during times of rising costs and resource shortages, The principal advantages of line simplification are: Potential cost savings from longer production runs Reduced inventories Helps in shifting concentration to do aggressive marketing, R & D, and other efforts to a shorter list of products. a nies to get rid of the product that is not doing well even in a growing market. It is an estment Itis a situation of reverse acquisition. This strategy is used by compa- aspect of product strategy. With the advent of strategic planning, divestment became an accepted option for companies looking for faster growth. More companies are believed to sell a business if the company will be better of divestment. exam.com 66le for Pharmacy Ma wgement Krisman and Pharmacoeconomics {Demand and Elasticity of Demand | In today’s market, a company can significantly increase its revenue by utilizing the pt of elasticity of demand. Elasticity of demand is defined as an indicator that n changes on the quantity demanded of a given commodity. Blasticity of demand can be ed into five different cate sures the effect of price classifi Perfectly elastic demand 2, Blastic deman 3. Unit elasticity of demand 4, Inelastic demand 5. Perfectly inelastic demand 1. Perfectly elastic demand: When the price change of the product may result in infinite change in the quantity demanded, it is classified as perfectly elastic demand, 2. Elastic demand: When the price change of the product may result in greater than proportionate changes in the quantity demanded of product, it is defined as elastic demand, Unit elasticity of demand: When the price change of n exactly proportionate change in the quantity demanded of product, it is defin elasticity demand, product may result in ed as unit 4. Inelastic demand: When the price change of the product may result in less than proportionate changes in the quantity demanded of the product, it is defined as inelas. tic demand. Perfectly inelastic demand: When the price change of the product does not have any effect on the quantity demanded, it is defined as perfectly inelastic demand. Coefficient of elas! following formula ity: The coefficient of elasticity can be calculated by the where E = coefficient of elasticity Q = the relative chan P= the relative change in price expressed as a percent in quantity expressed as a percenta, om, o7 www.pharmacyexam.Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics pple: If we reduce the price for Tolnaftate cream from $3 to $2.80 and this will increase the sale of Tolnaftate tubes from 55 to 85 tubes, what would be the coefficient of elasticity? Q= The relative change in quantity as a percentage = 85 x 100/55 = (135%) = (135-100) = 35% P= The relative change in price as a percentage = 2.8 x 100/3 = (93%) (100-93) = 7% QI = 35, A coefficient of over I normally indicates an increase in revenue, whereas a coefficient below 1 reflects a loss, since price reduction does not quite increase the sales of merchandise. When E = 1, itis a unitary elasticity In the current market of prescription drugs, we face most situations with inelastic de. mand. Changes in price on prescription drugs may not result in proportionate inverse changes in the quantity demanded. Since prescription drugs are used for health pur- poses, it is unlikely to see a low demand of prescription drugs, even at high prices. This causes inelastic demand, This is possible since prescription drug therefore patients will not compromise their health with pric (products) are useful for health purpose and ig of prescription drugs. The other factor that also affects the inelasticity of prescription drugs is the influence of physicians. Patients will give secondary consideration to price over physician’s deci ‘The other categories will rarely be seen in today’s market. Among these all, the type of elasticity least likely to be found within the current market would be perfect elasticity 68Reference Guide for Pharmacy Management and Pharmacoeconon Krisman [DRGs (Diagnosis Related Groups) DRG: It is known as diagnosis-related classification of hospital case types into resource use. Medicare uses this classification to pay for inpat roups. Diagnosis-related g oups (DRGs) are a roups expected to have similar hospital nt hospital care. The groupings are based on diagnoses, procedures, age, sex, and the presence of complications. Under this form of payment, the hospital is paid a specific amount for each patient treated, regardless of the number or types of services provided. Thus, the hospital is, rewarded for reducing the cost of treating a patient over the entire course of the iechnolo hospital stay. Per case payment removes the incentive to provide mc and encour additional services against their added costs. It helps cut down healthcare costs. It is the choice of payment for most third party payers. The reimbursement under DRG is considered prospective reimbursement. the hospital and its physicians to consider explicitly the benefits of ment method, medical problems are classified and the amount to treat Under DRG-pay each particular disease is pre-calculated. For example, Mr. Mehta is admitted to the Adecare Hospital for coronary bypass surgery Under DRG, the cost (including surgery, patient stay in hospital and medications) for this particular medical problem is $6500. Third companies are going to pay only $6500 to Adecare Hospital regardless of the service provided. . This will discourage a hospital from keeping a patient for a prolonged period of time. Now, if the s to $7200, then Adecare Hospital has to pay the difference ($700) from its own pocket. Similarly, if the I cost comes to $5300, Adecare Hospital will make an additional profit \ctual cost to treat Mr. Mehta's medical condition con However, per-case payment under this method is not as simple as it looks since the system does not take into account other factors that may affect the hospitals reimburse ment and quality of care, For example, if hospitals were paid the same amount for each admission reg: to treat patients who are less ill and to avoid the cases that require more resources, Therefore itis required to conduct and evaluate a study which can also take into account these other important factors, normally known as “case-mix. siless of its clinical characteristics, over time they would be encouraged Case-mix has been defined as the relative frequency of admissions of various types of patients, reflecting mix, some based on Jifferent needs for hospital resources. There are many ways of measuring case- patient diagnoses or the severity of their illnesses some on the utilization of services, and some on the characteristics of the area in which it is located, \ospital or 8 www.pharmacyexam.com 0Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics * Diagnosis Related Groups (DRGs) are just one of several approaches to measuring hospital case mix. Their importance is increased due to their recent approval by the Medicare prospective payment system. Because Medicare is willing to accept DRGs and use them as basis for hospital reimbursement programs, an evitable need arises to set up an organization that can verify, justify and evaluate DRGs and their structures. For this reason, the Office of Technology Assessment (OTA) was requested by the ’ House Committee on Energy and Commerce and its Subcommittee on Health and the Environment to examine DRGs and their implications for use in the Medicare program. This study of evaluating DRGs is also known by Dia, Medicare Program. It examines the validity and reliability of the DRG classification system, the accuracy of DRG coding, and the administrative feasibility of ad a DRG-based payment system. It provides examples of proposed and actual uses of ’ DRGs in hospital pay merit, Finally, the technical memorandum includes a thorough analysis of the implications for medical technology use and adoption of using DRGs as al part of a per-case payment system. This analysis includes a review of the ’ tures of design of DRG payment systems that affect medical technology, and a ’ discussion of the implications of technological change for the administration of a DRG payment system over time. nosis-Rekted Groups and inisteringManagement Manage Care Organizations (MCO)Reference Guide for Pharmacy Management ‘and Pharmacoeconomics Managecare Organizations Managecare: It is defined as a system of health care delivery that influences or con- trols utilization of services and costs of services. Due to the rising cost of healthcare, the federal government proposed the HMO act in 1973. The major goal was to control the healthcare spending and utilization services. The principle features of the HMO act are: Feasibility grants and low-interest development loan programs made available to encourage interested parties to develop and build an HMO. The establishment of procedures through which health plans could become “federally qualified HMO.” Inclusion of preventive as well as curative healthcare benefits. Requirements that employers offer federally qualified HMOs to their employees under certain circumstances. What is an HMO ? Health Maintenance Organization is a health care payment and delivery system involving networks of doctors and healthcare institutions, It offers consumers a comprehensive range of benefits at one annual fee (often with copayments or deduct: ibles that vary from service to service) but they can see only providers in the network. Physicians and other health professionals often are on salary or contracted with the HMO to provide services. Patients are assigned to a primary care doctor or a nurse as a “gatekeeper” who decides what health services are needed and when, ‘The HMO members receive comprehensive preventative, hospital, and medical eare from specific medical providers who have agreed upon pre-set rates. Members select Primary Care Physician or medical group from the HMO’s list of affiliated doctors, and generally have no deductibles or claim forms. Members make a small copayment, usually between $3 and $20. Some HMOs have capitated contracts with providers and some pay providers on a single discounted fee-for-service basis. An HMO can be classified into four major models: Staff model HMOs Group model HMOs Network model HMOs IPA model HMOs. www.pharmacyexam.comReference Guide for Pharmacy M and Pharmacoeconomics nagement Kulintécs Staff_ model HMOs; In this type of HMO, physicians are employed by facilities that are owned and operated by HMOs Major services such as diagnosis, laboratory tests, and pharmacy services are provided on-site. Many staff model HMOs also own hospitals. * Staff model HMOs have the high control over costs and utilization of servic Physicians and other healthcare providers are employees of HMOs. since Pharmacy services are provided by on-site pharmacies established by staff model HMOs. To better serve and increase patient's compliance, they also contract with local, chain and mail order pharmacies to provide prescription services, 2 Group model HMOs: These types of HMOs contract with multispecialist physician groups practices to provide healthcare related services to their plan enrollees. Under group model HMOs, physicians are employees of the group practice and are restricted to provide services to only the HMO’s enrollees. There are two kinds of group model HMOs. A. The first type of group model is called the closed panel, in which medical services are delivered in the HMO-owned health center or satellite clinic by physicians who belong to a specially formed but legally separate medical group that only serves the HMO. The group is paid a negotiated monthly capitation fee by the HMO, and the Physicians are salaried and generally prohibited from carrying on any fee-for-service practice. B. In the second type of group model, the HMO contracts with an existing, independent group of physicians to deliver medical care, Usually an existing multispecialty group Practice adds a prepaid component to its fee-for-service mode and affiliates with or forms an HMO. Medical services are delivered at the group’s clinic facilities (both to fee-for-service patients and to prepaid HMO members). The group may contiact with more than one HMO. An examples of a group model HMO would be the Kaiser Permanente Health Plan. Like staff model HMOs, the group model HMOs also provide most pharmacy related Services on-site and sometimes through chain or mail-order pharmacies. Hwy.pharmacyexam.comReference Guide for Pharmacy Management Krisman and Pharmacoeconomics 3. work model HMOs: In this type of HMO model, the HMO contracts more than ne multispecialist physician group to provide and cover wide geographical areas. + Pharmacy-related services are again provided by in-house pharmac chain pharma cies and mail order pharmacies. 4, [PAmodel HMOs: This type of HMO does not have its own, medical facilities. They normally contract with independent ‘community-based physicians and group practices. et They also contract with hospitals to provide other medical facilities (eg. lab tests or diagnostic services) * Unlike other HMO models, they don’t have any in-house pharmacis, however they ‘contract with chain and mail-order pharmacies to provide pharma related services to plan enrollees. ther Manage + Manage healthcare also provides healthcare-related facilities through organizations other than HMOs. The following is a list of such organizations: 1, * BPOF 2 Pes 3. EPOs 4, PHOs 1. PPOs Also known as Preferred Provider Organizations. They are contracted net- | work of hospitals and physicians (by an insurance carrier) that Pr jovide healthcare related services similar to HMOs. | e: traditional HMOs in following ways: 1. They provide a larger network and more freedom of choices (Prov iders) to patients | compared to traditional HMOs. They are more expensive than traditional HMOs, but less exPensiv® compared to indemnity insurance. | 3, They exert less control over providers (Physicians, hospitals, pharmacies) than HMOs. veww:pharmacyexam.com4 Reference Guide for Pharmacy Management and Pharmacoeconomies 1 3 4 Krisman Ahybrid of a PPO and an HMO. The members of a POS plan can obtain healthcare services through an HMO or a PPO network. The members who select HMOs have to pay lower monthly premium compared to members who select a PPO network. However, the member who selects a PPO network has a more freedom of choice in selecting physicians and health-related services over the members of tradi- tional HMOs EPOs: They are similar to PPOs but members can only use contracted providers. For example, Dr. Brooke is not a contracted provider of an EPO; a member cannot use this 7 physician for health-related services. They are normally established by large employer f groups to achieve a goal of cost containment PHOs: They are known as physician hospital organizations. They are owned by hospitals and affiliated physicians. They also contract with traditional HMOs to provide their -ographical areas, embers to access la Physicians Reimbursement Methods Physicians associated with different types of HMOs are usually reimbursed by the following mechanisms: Salary Bonus associated with plan performances Capitation Discounted FPS arrangements Among these, a discounted FFS and capitation reimbursements are the most commonly used methods by HMOs. Capitation reimbursement: In this type of reimbursement, a physician or a group of physicians will receive a fixed monthly fee for providing healtheare-related services to members. Under this reimbursement method, physicians will receive the same monthly fees per member regardless of patients’ visits or services provided by physicians. This method discourages physicians from providing unnecessary medical services to patients in order to earn more financial incentives. Under this monthly per capita payment, a capitated physician is expected by plan sponsors to cover a full range of services such as outpatient visits, preventive care, diagnostic and laboratory tests, etc. joyipharmacyexam.com 75Reference Guide for Pharmacy Management Krisman, and Pharmacoeconomics Discounted FES reimbt 1s: Under this type of reimbursement, physicians receive payment when they provide covered services to plan enrollees. Howev , their feimbursements are discounted from U & C reimbursement rates. In addition, physi- ‘ans will receive the portion of reimbursement, often 80%. The remaining 20% is ‘withheld by plan sponsors and paid out atthe end of the year only if certain perfor mance objectives are met. Physicians who do not perform efficiently or in other words are costly do not receive 20%. Physicians who are moderate to average performers will receive their reserve yi! Donot Physicians FFS Receive Withhold www.pharmacyexam.coma, Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Medical Loss Ratio (MLR) Medical Loss Ratio: It is defined as the cost of providing actual healthcare divided by the premium received from the plan members. To better understand this term, look at the following chart. EMOF ke pee pes pee go > [scot — gre Hospital > Denta/ > S15 Chiro- practitios (Figure 1.8) In the above example, the MLR ratio would be MLR Ratio = Cost of Providing Healthcare Premiums MLR Ratio= 85/100 =0.85 0.85 is known as the MLR ratio. Generally, employers are looking for higher MLR ratios since a higher MLR suggests that more of the premium is paid to cover the premium costs rather than retained by an HMO as management fees. An MLR is useful to find health-related benefits and evaluated the effi health plan. ency of a 6 www.pharm: -yexam.com 1Reference Guide for Pharmacy Management Krisman and Pharmacoeconomi ave Pharmacy Benefit Management (PBM) There are two important factors that affect the overall costs of healthcare. They are: Cost per unit of service Number of units utilized Manage Care Organizations (MCOs) control these costs by controlling the supply and demand of healthcare-related products and services. The supply side controls involve physicians, pharmacists, and pharmaceutical manufacturers, In order to obtain effective supply side control, an MCO tries to buy or reimburse di and dispensing fee-related services at a discounted price. Demand side controls involve patients. This can be achieved by introducing copay- ‘ments of coinsurances whenever plan members obtain healthcare services. This way an MCO eliminates unnecessary visits to physician offices or pharmacies, and keeps healthcare costs under control In order to create effective supply side control, an MCO has initiated to provide pharmacy benefits through their own internal pharmacy departments or through carve~ out pharmacy management organizations which are specialized in pharmacy related services. This gives a birth to pharmacy benefit management (PBM). Most carve-out PBMs we ed within internal pharmacy departments of lai HMOs. However, there are two exceptions: Prescription Card Service (PCS) and. Merck-Medco did not originate from HMOs. They started as independent pha benefit management providers, acy Most manage care prescription drug benefits include the following areas of services: Provides a defined physician's network Provides a defined pharmacist’s network Provides a list of drugs covered under formulary Provides a mandatory generic substitution program Offers a retrospective DUR study Offers a prescription copayment plan In order to successfully market pharmacy benefits, PBMs must consider the formula of the four “Ps”; Products, Price, Place, and Promotions. www.pharmacyexam.comReference Guide for Pharmacy Management idiot and Pharmacoeconomics * State Medicaid and Federal Medicare regulations are the biggest challenges for PBMs and MCOs to control health-related costs. As these regulations are continuously updating, an MCO and PBM are facing even more difficulty. * As Medicare programs offer a very limited drug benefit coverage, a manage care plan that offers an optional drug benefit coverage are at the top, and most popular among the Medicare-eligible population, These types of plans help senior citizens to get their medications at reasonable prices and support compliance and persistence with the prescription therapy. * Also, by promoting and supporting elderly prescription medication needs, these types of manage care plans can even save a large amount of healthcare expenditures every year related to drug noncompliance. For example, by reducing emergency hospitaliza- tion costs by increasing and encouraging drug utilization in seniors. re Pharmacy Benefits costs can be controlled by MCO following ways: P Mec 1. By limiting the annual-benefit-maximum or cap. It ranges from $500 to $2500 per year. This way, health plan sponsors can restrict a single member from depleting the of many other plan members. funds that cover the bene! 2, By providing a closed formulary. The formulary guides the members to use more cost effective drugs without compromising the quality of care. + By providing mail-order pharmacy services. It offers unique benefits to the Medicare risk program. The principal advantage of mail-order pharmacy services are convenient home delivery, and a 90-day supply of the drug for the cost of just one copay. * — MCOs also offer plan members the option to select the level of benefits by offering different copayment rates. Medicaid Pharmacy Benefits Most states participate in a cost-controlling strategy for the Medicaid program, This can be achieved by contracting with health plans, PBMs, and other MCOs. By trans. ferring the financial burden of the state Medicaid program to MCOs or PBMSs, states can reduce the drug-related costs and increase the overall efficiency of Medicaid programs, pharmacyexam.comReference Guide for Pharmacy Management Krisman, and Pharmacoeconomics Pharmacy benefits of Medicaid programs may not be limited to prescription drugs services, Many benefits include durable medical equipment, adult diapers, non- prescription drugs, prosthetic devices, diabetic supplies, ete. To successfully obtain the Medicaid state contract, a MCO or PBM has to include all the mentioned benefits in their proposal Unlike Medicare, a Medicaid program does not have any benefit cap. The program also offers a few copayment based healthcare plans to its enrollees. Pharmacy Benefit Design ‘As we all know, prescriptions drugs will continue to be an important element for controlling total healthcare costs. Drugs developed to be selective and effective for specific diseases with fewer side effects will be increasingly in demand by payers and plan members, however these more “focused” drugs are going to be more expensive than less selective drugs within the same class. This is going to be the main concern for pharmacy benefit design. APBM (Pharmacy Benefit Management) that offers more selective drugs with rea- sonable prices are likely to be favored by payers and plan members. However, there are a few other factors which will also affect the pharmacy benefits design for PBMs and other health plan sponsors. These factors are: An inclusion of lifetime enhancement drugs in pharmacy benefits. ‘A provision of electronic prescribing by the prescriber in pharmacy benefits. An inclusion of | ne enhancement drugs in pharmacy benefits: ‘The release of new pharmaceutical drugs that are designed to improve the quality of life or extend the normal life span have a tremendous response from payers and plan members, and therefore the inclusion of such products in pharmacy benefit design are required by PBMs and other health care plan sponsors. ronic pres A provision of electronic prescribing by the prescriber in the pharmacy benefits des isa second major factor for selecting PBMSs or other healthcare plans by plan mem bers or payers. www.pharmacyexam.com.re Reference Guide for Pharmacy Management and Pharmacoeconomics Krisman Also, a PBM that develops a system which has capability to identify the least expen- sive and most high quality drugs by prescribers (electronically) before prescribing will likely get more contracts, since members or plan members will not have any psycho- logical effects of restrictive for In other words, electronic prescribing will eliminate the step of looking into drug- formulary, since physicians will consider side effects, effectiveness, and the cost of drugs before prescribing drugs. Pharmacy Distribution Systems A successful Pharmacy Benefit Management (PBM) program will require a well- organized and efficient pharmacy distribution system. The pharmacy distribution systems help patients to access the most clinically appropriate and cost effective medications. From the patient's point of view, convenient access to a participating pharmacy provider is foremost ‘These are the three major options for a pharmacy distribution system: Community pharmacy network services In-house pharmacy services. Mail-order pharmacy services Community pharmacy network: It is a group of licensed community independent or chain pharmacies that have contracted with a health plan or PBM to provide services to their members. In-house pharmacy services: They are usually located within a staff or group model HMO. These pharmacies only provide services to their HMO members. Mail-order pharmacy services: The third distribution option is the mail order pharmacy service. Very often, this option is included with community pharmacy networkje for Pharmacy Management onomics Reference Gui and Pharmac« 1 Community Pharmacy Provider Network: * ‘There are four basic types of community pharmacy networks Open, precontracted or shelf Restricted, preferred or customized Exclusive or closed Specialized { 1. Open, precontracted or shelf: This type of network will enroll any pharmacy that agrees to terms and conditions of PBMs or other healthcare providers. * Since the base reimbursement rate is inversely proportional to the size of the network ‘open networks usually have the highest reimbursement rates and program costs. Restricted, preferred or customized: This type of network is designed to meet the eds of an individual plan sponsorship with a limited pharmacy network. The reim- bbursement rates and costs are lower than open pharmacy networks. 3. xclusive or closed: A closed or exclusive type of network has fewer pharmacies than restricted, preferred or customized pharmacy networks, and therefore has the lowest nbursement rates and program costs. 4. Speciali Examples of such networks are HIV-related drugs, drugs for multiple sclerosis, inter network: It is created to accommodate a specific class or type of drug. feron, etc * A specialized network service requires in-depth knowledge of a particular disease, patients’ monitoring and therapeutic consultations. %* A pharmacy participating in a specialized network must maintain an inventory of specialized medications or injectable. Reimbursement rates are based on product ssary to provide a speciality service costs and the time ne Advantages of a community pharmacy network: 1. Broad access to pharmacy services and covers large geographical areas 2. Quality pharmacy services 3, Administrative uniformity www.pharmacyexam.com,Reference Guide for Pharmacy Management and Pharmacoeconomics 2. In-House Pharmacy Servi In-house pharmacies are mote often associated with a staff model HMO, however sometimes you may also see them operated and owned by an employee benefit manager, a large employer (e.g. Walmart) or any location with a large number of plan members. Advantages of In-House Pharmaci ‘The principal advantage of a staff model HMO in-house pharmacy is the significant control it has over the physician's prescribing patterns. 2. Pharmac and physicians work together to develop and prepare a drug formulary, which results in better compliance and cost-effective therapeutic outcomes, A ronger working relationship between pha cists and physicians 4, Easy to inte; rate pharmac member satisfaction. related data with medical data which helps to improve 5. Better and effective utilization of generic drugs by pharmacies an 6 Easy way to conduct and incorporate educational programs and other techniques that improve a patient’s awareness toward disease and improves therapeutic outcomes. Disadvantages: et 1 ‘The major disadvantage of in-house pharmacies is their limited pharmacy network. which may not offer easy and convenient access to phat nacy services for patients. ‘The other disadvantage associated with in-house pharmacy services is a noncompli- ance; if the pharmacy is far away from the member’s residence, the plan members ‘may not be able to fill or refill prescriptions in a timely manner: Mail Order Pharmacy Services * Most employers and plan members want mail-order prescription services along with retail and in-house pharmacy services. Mail-order pharmacy services have two distin- guishable advantages: 1, Low copayment cost (usually 90-day supply per copayment) 2 Convenient delivery of medications vwv.pharmacyexam.comnan Reference Gi and Pharmaco ide for Pharmacy Management momics In-House Pharmacy Services: In-house pharmacies are more often associated with a staff model HMO, however sometimes you may also see them operated and owned by an employee benefit manager, a lat large number of plan members. rge employer (e.g. Walmart) or any location with a Advantages of In-House Pharmacie: ‘The principal advantage of a staff model HMO in-house pharmacy is the significant control it has over the physician’s prescribing patterns. Pharmacists and physicians work together to develop and prepare a drug formulary, which results in better compliance and cost-effective therapeutic outcomes. A stronger working relationship between pharmacists and physicians. Easy to integrate pharmacy-related data with medical data which helps to improve member satisfaction. Better and effective utilization of generic drugs by p! m: Easy way to conduct and incorporate educational programs and other techniques that improve a patient's awareness toward disease and improves therapeutic outcomes. Disadvantages: The major disadvantage of in-house pharmacies is their limited pharmacy network, which may not offer easy and convenient access to pharmacy services for patients, The other disadvantage associated with in-house pharmacy services is a noncompli- ance; if the pharmacy is far away from the member’s resident may not be able to fill or refill prescriptions in a timely manner the plan members Mail Order Pharmacy Services Most employers and plan mer bers want mail-order prescription services along with retail and in-house pharmacy services. Mail-order pharmacy services have two distin- guishable advantages: Low copayment cost (usually 90-day supply per copayment) Convenient delivery of medicationsReference Guide for Pharmacy Ma Krisman and Pharmacoeconomics associated with Mail-Order Pharmacy Services: Administrative costs can be minimized by acquiring only one mail-order pharmacy location that serves as a central pharmacy to serve patients" prescription needs, Moreover, unlike retail pharmacies, mail-order pharmacy services do not require a ‘commercial location since patients will receive a prescription in the mail. Mail-order pharmacies normally fill ten times more prescriptions than average retail pharmacies. This gives them the benefit of wholesale discounts Since patients receive their medications through the mail, this would be the perfect option for disabled and elderly patients. The average 90-day supplies minimize the dispensing time for pharmacists and technicians, and offers the better copayments rates. Many mail-order pharmacy services also offer a refill reminder service, which increases patient compliance. Disadvantages: Lack of personal touch and face to face counseling Increased waste, with an average 90-day supply; there is a potential for waste if a medication is discontinued or changed by a prescriber Drug Formulary A drug formulary is defined as a list of drugs that are covered by specific healthcare plan administrators. It can be subdivided into four major catego Open formulary Closed formulary Limited or restrictive formulary Negative formulary Open formulary: It covers almost all medications that are available in the market Physicians who follow an open formulary can prescribe virtually any drug. Payers oF plan members have to pay higher premiums due to freedom of choice. www.pharmacyexam.comReference Guide for Pharmacy Management and Pharmacoeconomics 2 3. www.phar Closed formulary: It is an exclusive list of specific drugs that may be covered under the health plan. This formulary restricts prescribers from prescribing drugs outside of the formulary. Drugs that do not appear on the list of approved products are defined as non-formulary drugs and are not covered by health plans or PBMs. A patient has to pay out of his own pocket in order to get non-formulary drugs. imited or restricted formulary: Limited, restricted, intermediate, partially closed, or selectively closed formularies are formulary hybrids. They restrict or limit the prescriber choices in certain therapeutic categories and offer unlimited choices within the remaining drug classes. An example of such a drug would be Finasteride for the ‘treatment of male pattern baldness. A healthcare plan may opt out the whole category from the prescription plan. Negative formulary: It includes a list of drugs that cannot be prescribed within a specific therapeutic class, Formulary and Its Decision Making Process The Pharmacy and Therapeutic (P & T) committee is the major decision making body for the formulary. It consists of physicians, pharmacists, and sometimes nurses. The physicians who are appointed on the committee often represent a wide scope of medical practices ranging from prin ary physicians to physician specialists. The main focus of the committee is to develop policy and educate healthcare professionals on various aspects of healthcare-related subjects. As far as development tobe included in the formulary. The P & T committee also develops other policies pertain- therapy of policy is concerned, most polices are related to evaluate and select dr ing to drug therapy to ensure safe and cost-effective dru ‘The members of the P & T committee are a team of local “drug experts”, and may also serve as drug educators. They often help health plan mana make decisions regarding inclusion of new prescription drugs in the program. gers and sponsors to The P & T committee also develops educational programs which guide their profes- sional staff about appropriate drug therapy and drug usage. Many manage care organi- zations now put more emphasis on advice and decisions taken by their P & T commit- tee. For example, just recently the P & T committee of a number of manage care organizations has developed and introduced educational programs on appropriate use of antibiotic therapy acyexam.com,Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics LL. Under this program, a few guidelines are provided for healthcare professionals to censure that antibiotics are dispensed to those cases (meet guidelines) that are the most Clinically appropriate. Not only that, the program also educates patients not 0 expect tmibiotic prescriptions all the time. Ultimately, patient care is improved with 9 eduction in antibiotic resistance cases, and cost effectiveness can be achieved by avoiding unnecessary utilization of expensive drugs. “The P & T committee most commonly relies on peer-reviewed clinical literature and information from the pharmaceutical manufacturer when evaluating a new drug. However, guidelines for evaluation of drug formulary submissions are now being developed by the Academy of Managed Care Pharmacy. These guidelines ask for data, regarding drug utilization costs and the impact of the drug on disease manage, ment, from pha cal manufacturers in order to justify a drug’s inclusion in the formulary. Before introducing a new pharmaceutical product in the formulary, the P & T commit: tee may review the following factors associated with the new drug product Source of supply and reliability of manufacturer and distributor Unlabeled use and its appropriateness Bioavilability data of the new drug Pharmacokinetic data of the new drug Pharmacological and pharmacodynamic properties of the new drug Dosage ranges by route and age Risk versus benefits regarding clinical efficacy and safety of a particular dr to other drugs with the same indication Side and toxic effects profile of the new drug Special monitoring or administration requirement of the new drug Pharmacoeconomic data of the new drug Cost comparisons against other drugs available to treat the same medi relative al conditions wwww.pharmacyexam.com,Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Drug Utilization Review * Drug Utilization Review (DUR): It is an ongoing study of the frequency of use and cost of drugs from which patterns of prescribing, dispensing, and patient use can be determined * Advantages of DUR To identify drug-drug interaction 2. To prevent therapeutic duplication 3. To prevent under- or over-dosing of medications 4. To improve the quality of care To encourage physicians to use more formulary and generic drugs * The DUR process be subdivided into three major cat Retrospective DUR Prospective DUR Concurrent DUR 1. Retrospective DUR: This type of DUR study is normally conducted after the drug therapy has already been administered. For example, studying sulfa hypersensitivity reactions in a patient receiving Glyburide. * Advantages of a Retrospective DUR study: Itis very simple and easy to implement. 2 Study requires a very limited resources. 3. Provides valuable information about future drug therapy Disadvantages: 1 The major disadvantage of a retrospective DUR is that it does not provide an immedi- ate benefit to the patient's care. Since this study is conducted after an event has happened, there is no chance for change or to modify drug therapies. The study is completely depend on written documentation filed in a patient profile which is often too sufficient to conduct the study or is missing valuable information, www.pharmacyexam.co1 87Reference Guide for Pharmacy Management Krisman, and Pharmacoeconomics A Retrospective DUR study helps to identify: Drug- = 180000 x 100 $473684 38 This is going to be the BEP for Manan Care Pharmacy since at this sale volume, the pharmacy will earn enough to cover its fixed costs. For a sales revenue greater than $473684, the pharmacy will make a profit of 38 cents per dollar. The other 62 cents j will be used to cover variable costs due to an increased sales volume. Stay Even Point When a pharmac advertising, offeri pharmae} anager makes any changes to their pharmacy (i. increasing 1¢ discount), they always look forward to maintaining the 's current profitability rather than just the break even. The predictable point at which a pharmacy maintains its current profitability even after adding services to the pharmacy is defined as the SEP or Stay Even Point The SEP can be calculated by treati example, Manan Care Pharm: $180,000, therefore: net income as an additional fixed cost. For y has a net income of $200,000 with a fixed costs of SEP = (fixed costs + net profit) / CM % SEP = (180000 + 200000) / 0.38 |Tocover$0.38 —> $1 sale volume To cover $380,000 —> SEP = $1000,000 By treating a net income as an additional cost, Manan Care Pharmacy must earn a total sales volume of $1000,000 in order to stay above the BEP. 138 wrw.pharmacyexam.com 139aa Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Example: If Manan Care Pharmacy wants to raise its advertisement costs from $5000 to $15,000 per year, what would be Stay Even Point for the pharmacy in order to maintain profitability? Manan Care Pharmacy Fixed Costs | $ 180,000 Net Income | $200,000 eet cM % 38 % ‘An increase in advertisement cost would be $10,000 ($15000 - $5000). Therefore, SEP = (fixed costs + net profit )/ CM % SEP = (180,000 + 10,000 (advertisement cost) + 200,000 )/ 38% = $1026315.78 A new SEP would be $1026315.78 ‘Thus, if Manan Care Pharmacy wants to increase its advertising budget by $10,000 per year ($15000 - $5000), the pharmacy must earn a total sales volume of $1026315.78 in order to maintain its profitability level. www.pharmacyexam.comSuide for Pharmacy Management Kriantin Referenes and Pharmacoeconom TYF of COSTS business, ny pharma There are mainly two types of costs associated with These are: 1 Direct costs 2. Indirect costs Direct costs: These costs are directly affiliated with serv Examples of such costs are: 1, Prescription containers 2. Prescription labels 3. Pharmacists’ time to provide counseling 4. Pharmacy license fees 5. Continuing education programs costs 6. Patient's education material print out costs 7. Computers and software costs 8. Professional liability insurance * _Alllthe above costs are directly affiliated with pharmacy services. For example, if a pharmacy does not dispense a prescription, then costs related to the prescription containers or labels would not occur me 2 ‘These costs are not directly associated with services provided by a ; pharmacy. For example, costs related to the store manager’s salary, rents and utility expenses of a building would still occur even if the pharmacy does not provide pre- : scription services. These types of costs are classified as indirect expenses. Example: By using the following data, calculate an approximate dispensing cost for Manan Care Pharmacy. Pharmacist's Salary $ 90,000 Equipments, prescriptions & $ 20,000 containers costs : Building-rent, uti jes and department only) Building-rent, utilities and maintenance costs (AX $ 10,000 maintenance costs $ 40,000 (store) } Other indirect costs '$ 60,000 No of rxs dispensed by 60,000 pharmacy in coming year | (Table 2.3) www.pharm m.com 141Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics The Cost To Dispense (CTD) can be calculated by using the following formula om eens (Total indirect costs) erp = -£0.000+ 20,000) + (10,000-+ 60,000) 7 40,000 (110,000) + (70,000) 40,000 08 = $4.50 per prescription Based on the data given, Manan Care Pharmacy should keep its cost of dispensing to $4.50 per prescription in order to cover its major expenses. If you notice, we have not considered indirect costs of $40,000 in our calculation. Since this figure relates to indirect expenses of the whole store, we cannot include it to count cost to dispense for prescription, Methods for calculating the product price There are three principal methods by which the product price can be calculated. These are: Mark-up method Professional fee method Sliding scale method Mark-up method: This method relies on the cost of ingredients. The dispensing fees can be calculated by using the following formula: Dispensing price = ingredient costs 4. (ingredient costs x % mark-up) Example: What would be the prescription cost for dispensing 30 tablets of Ketoconazole ($120) ? The % mark-up on a prescription would be 15. Dispensing price = 120 + (120x 0.15) 120 + 18 = $138 www:pharmacyexam.comReference Os le for Pharmacy Management Krisman and Pharmacoeconomics The dispensing price for a prescription can also be calculated by using a mark-up on the retail price method. Example: If the ingredient costs for 30 tablets of Ketoconazole is $120 and the percentage mark-up on retail price is 15, what would be the dispensing price of the prescription? Dispensing price (DP) = ingredient costs + (Price x Markup %) Dispensing price (DP) = ingredient costs / (1 — mark up %/ 100) DP= 120 /(1- 15/100) DP = 120/0.85 DP=$141.17 The mark-up on retail price method is the most widely used method for determining the dispensing price. Since it determines the price on the basis of mark-up on retail ‘one can easily calculate the gross margin on the prescription. Advantages of mark-up methods: The principal advantage of the mark-up method is that it protects the pharmacy against the price inflation. As the ingredient cost increases, the dollar margin on the prescrip: tion also increases proportionately Disadvantages of mark-up methods: The principal disadvantages of the % mark-up method is that it subsidizes low-cost products with high-cost products. For example, if the pharmacy sells analgesic balm for $6.00 ($5 ingredient cost + 20% mark up), the pharmacy will make a dollar margin on the prescription which is far lower than the average dispensing cost ($5.00) of the prescription Now consider that the pharmacy is selling Xalatan eye drops, and the dispensing price Will be $120 ($100 ingredient cost + 20% mark up on prescription). The dollar margin on this prescription is $20 which is far higher than the average dispensing cost ($5.00) of prescription. However, a patient will react to this high price of Xalatan eye drops and may go somewhere else to fill a prescription. On the other hand, when the patient is purchas- ing an inexpensive drug such as analgesic balm, he or she is unlikely to even notice that the prescription price is exceptionally low. www.pharmacyexam.com 143Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics y Professional fee method: This method is widely used by most third party prescription programmers to reimburse pharmacies. Under this method, the price of a prescription can be calculated by adding a fixed amount of predetermined fees to the ingredient costs of the medication. For example, if an ingredient cost of analgesic balm is $5 and fixed reimbursement rate for the prescription is $6, the retail price of the prescription would be $11 ($5 + $6). ‘As the dispensing fee (professional fee) remains the same regardless of cost of ingre- dients, the dispensing price for xalatan eyedrops under this method would be $106 ($100 ingredient cost + $6 professional fee). Disadvantages: It yields low gross margin on expensive products. For example, the percentage gross margin on xalatan eye drops would be 6%, which is far lower than the average gross margin percentage on prescription (usually 15 to 20%), ‘This system discourages a pharmacy from carrying expensive drugs. Since the margin ‘on expensive drugs is so low, then it could not even cover the cost to keep the expen- sive products in the inventory. ‘This system encourages overutilization of prescription drugs. For example, a patient will prefer to buy three months worth of a medication supply by paying a one-time dispensing fee rather than purchasing a month supply of the drug and paying three times for dispensing fees. Sliding scale method: As discussed earlier, the mark-up method subsidizes low-cost drugs with high-cost ones, and the professional fee method disregards the higher inventory carrying costs associated with more expensive drugs. The sliding scale method overcomes the disadvantages of both systems. Under this type of reimbursement method, if a pharmacy uses a % mark-up method, it shall use a variable percentage mark-up method which allows the pharmacy to charge a low % mark-up on expensive drugs and a high % mark up on low-cost products. This will eliminate subsidization of low-cost drugs with expensive ones. Ifa pharmacy uses a professional fee method, the sliding scale method advises phar macies to charge lower dispensing fees on expensive drug products and more for low cost drug products. This way pharmacies may cover inventory carrying costs for expensive products and at the same time may offer reasonable prices to patients on low-cost products. www.pharmacyexam.com 4U.S Healthcare Delivery System |Reference Guide for Pharmacy Management and Pharmacoeconomics Health Ambulator to patients for which they are not required to stay overnight or be hospitalize. For by physici Care: It is defined as different types of health-related services provided example, outpatients services provi ns. In the U.S., ambulatory care services are provided by 1. Hospital outpatient c Community health centers 3, Ambulatory surgery centers 4. Hospital emergency departments 5. Free standing emergency centers 6. Family planning centers 7. Clinical laboratory services 8. Voluntary health serv 9. Hospitals 10. Long-term care services 10.2. Nursing homes services 10.b, Rehabilitation facilities 11. Home health care 12. Adult day care 3. Hospice care 1. Hospital outpatient centers: This type of ambulatory care service is normally pro vided by hospitals. Patients with non-urgent medical problems may visit these types of clinics Clinics are normally separated from hospital eme rency departments. They may be classifi as general or specific according to their specialization. For example, a diabetic clinic center, oncology clinic center, ete Hospitals are expanding clinics in the area away from hospitals in order to better serve the community and earn an extra income. There is also another incentive for hospitals to expand the clinic-they can build up a relationship with patients and encourage them to use a clinic’s own hospitals for other major medical problems. Community health centers: Community health centers began to develop in the late 1960s. Initially, funding for these centers was received from the office of economic opportunity and later from U.S. Department of Health, Education and Welfare. www.pharmacyexam.com 179Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Community centers provide health-related services to a defined population of poor people. Before the existence of community health centers, the poor people and low income patients received healthcare from health departments and hospitals. However, in order to receive help, patients had to wait in a line for hours. To overcome these problems and to provide better health-related services to the poor and needy people, community health centers were developed by the U.S. Department of Health, Educa: tion and Welfare. Ambulatory surgery centers: Due to advancement in healthcare technology and new reimbursement pattems from third parties payers, there has been an increased in the number of outpatient surgeries. In old days, the surgery that may require a stay in the hospital for at least 2 to 3 days, has now been replaced by a same day discharge. This m ificantly help the cost unnecessary hospitalization utting strategy of current healthcare by avoiding * In 1999, there were over 2700 freestanding outpatient surgery centers, up from 2400 in 1996. In addition, Medicare now also covers many outpatient surgeries which may help outpatient surgery centers to compete aj sary hospitalization costs. inst hospitals, and cut down unneces- Hospital Emergency Departments: The Emergency Room (ER) or Emergency Department (ED) is the most commonly used setting for emergency care. In 1986, the federal government passed an “antidumping law,” which indicates that hospitals cannot inquire about a patient's insurance status before providing emergency medical services. However, this causes a major problem to ERs since most manage care organizations refuse to pay for emergency care without prior authorization. Also, most patients al care either insured or uninsured; this will increase the financial burden on hospitals. receive emergency medi ‘The emergency room is often described under outpatient services since most patients receive the emer; ency care and are discharged on the same day Freestanding Emergency Centers: Freestanding emergeney centers are often as urgi-care centers. They provide episodic emergency care 24 hours a day for non-life threatening conditions. ! * They provide most care on a “walk-in” or appointment basis. Unlike medical clinics, they require payment at the time of service provided. Most of them do not use insur- ance companies for reimbursements. The form of paym credit card. However, they provide complete documentation about services provided | to patient to submit to insurance companies in order to rece payment is made to the center. could be check, cash, or fe reimbursement after www.pharmacyexam.com 18Reference Guide for Ph and Pharmacoeconomics ent Krisman 6. Family Planning Centers: It was first established in 1970 when Congress passed Title X of the Public Health Service Act. Under this title, the federal government provides all funding to establish family planning centers, Family planning centers provide a wide range of services which include: 1, Gynecological examinations 4, Routine child health screenings Breast or cervical screenin 5. Sexually transmitted disease 3. Contraceptive information and supplies diagnosis and treatment 7. Clinical Laboratory Services: They provide a variety of laboratory analysis to physicia s. Most times, physicians collect and send to a nearby clinical laboratory run by a license pathologist. In some instances, physicians may send patients to the lab. Under the 1988 Clinical Laboratory Improvement Amendment Act, all clinical labora- tories are required to ensure the quality of test results. 8. Voluntary Hea vide ambulatory diseases and are funded la : There are many voluntary health a ith Agenci care services to patients. These agencies are focused to treat specific encies which pro ly by charity. Examples of such agencies are: A. American Heart Association B. American Diabetic Association ‘ The services provided by these agencies are not limited to healthcare; they often support research, arrange education programs to increase awareness of patients, and also finance health-needed services. 9. Hospitals are considered as the place where patients with acute or severe illnesses may receive medical care. It is a place where patients have access to all medical field specialists, such as physicians, pathologists, nurses, pharmacists, radi ologists, and anesthetics. Generally, a hospital is classified in terms of the physical makeup and quantitative nature of services provided. ' Hospitals are classified by Ownership 2. Length of stay 3 Type of service 4, Bed capacity www.pharmacyexam.co 181Reference Guide for Pharma Management Krisman and Pharmacoeconomies B. Ownership hospitals: Depending on the ownership of the hospital, it can be subdivided (0 three major categories: Nonprofit hospitals For profit hospitals Government hospitals Nonprofit hi must be turned back into the hospitals operation or community welfare. They have a board of trustees who voluntarily participate to run and operate hospitals without receiving any pay pitals: These are types of hospitals where profits earned by hospitals They are exempt from tax requirements. However, in order to qualify for tax-exempt, hospitals must obey a certain criteria provided by federal statues such as hospitals may not refuse to provide medical care to patients who at service. Most church-affiliated hospitals fall into this cat able to pay a fee for For Profit hospitals: of making a profit. The profit earned by these hospitals is distributed to their sharholders who elect the board of directors to operate the hospital nlike nonprofit hospitals, these hospitals operate with the goal Due to peer pressure from shareholders and owners, for profit hospitals operate more efficiently with strict cost effectiveness. Therefore, ma criticized for paying more attention to cost-cutting strategy than to quality of care. times for profit hospitals are Government hospitals: These types of hospitals are owned and operated by federal governments. These include 27 hospitals for the Army, 19 for the Navy, 44 for the Airforce, and 144 for veterans, Length of stay: Depending on length of stay of a patient, a hospital can be divided into two different categories Short-term hospitals Long-term hospitals Short-term hospitals: The average length of stay is less than 30 days. Long-term hospitals: The average length of stay is more than 30 days. Type of service: Depending on types of services, a hospital can be divided into two subcategories: General hospital Special hospital (Cancer, Psychiatric or Pediatric) www.pharmacyexam.com 182Reference G de for Pharmacy Ma nage Krisman and Pharmacoeconi 4. Bed capacity: Hospitals are also classified according to their bed capacity 1. Under 50 beds 50-99 beds 3. 100-199 beds 4. 200-299 beds 5. 300-399 6 400-499 beds 500 beds and over 10. m care services: As the name suggests, it offers health-related services to patients for an extended period of time. The members of long-term care are mostly patients of any age with conditions such as birth defects, spinal cord injuries, mental impairments, or any other chronic conditions that may affect a patient's ability to per normal routine tasks. * \erm patients are elderly. The health related service: are are very expensive. Facilities that provide long-term care can be subdivided into two major cat a Nursin; vices b. Rehabilitation facilities 10(a) Nursing homes: They represent the large majority of long-term healthcare. The federal government divides nursing homes into two major categories: i A skilled nursing facility (SNF) I Anintermediate care facility (ICF) I. Skilled nursing facility (SNF): It is a nursing home that has been certified as meet ing federal standards within the meaning of the Social Security Act. It provides 24 hour nursing home services with medical care which is equivalent to hospitals. m illnesses. In a The members of SNFs are patients who are suffering from long recent year, a number of hospitals have their own skill nursing units. These wil facilitate hospitals to use their acute care beds more efficiently Hospital-based nursing homes provide better health related services due to their sufficient staffing 82 www.pharmacyexam.com 183Reference Guide for Pharmacy M: and Phi www.ph janagement Krisman Intermediate care facility (ICE): It is also a nursi meeting federal standards within the mea home that has been certified as Social Security Act. They pro- vide less extensive health related services to patients compared to SNFs. ing of th They have regular nursing services, however it is not 24-hour. The members of ICFs include patients who are not capable of living on their own, yet are not necessarily il enough to need 24 hour nursing care. e home services] The cost to cover nursing home care has been increa mium to obtain or qualify for long-term care services ra year depending on the medical condition of patients. :d dramatically. An average pre- yes from $400 to $4000 per Unfortunately, many patients cannot afford these high premium rates, and consequently rely on Medicare, Medicaid or state or federal granted programs for services. Ever required to obtain services, he should che reimbursement from Medic services rather than extended (skilled) nursing services, Medicare is more favorable to though Medicare does not cover nursing home related services, if a patient is, an intermediate care facility in order to get e. Since the majority of patients require intermediate care intermediate care facilities when the time comes to pay the reimbursement Prior to 1997, skilled nursing homes were reimb: sed by Medicare on the basis of cost Act of 1997, Medicare has .g homes on the basis of flat rate per day. Due to this, many nursing plus a margin of profit. However, after the Balance Bui started to pay nursi homes are currently facing financial problems, and consequently giving poor medical care Unlike Medicare, Medicaid reside below the poverty line in order to receive cove eimburse both SNFs and ICFs, However, patients must The eligibility and cover for SNFs and ICFs under Medicaid plans depends on the states and may vary greatly. Since Medicid only covers health-related services if the patient has a very low income, many elderly use the strategy of “spending down,” which involves paying out of pocket until a person becomes poor enough to qualify for Medicaid benefits. Some elderly also transfer their assets assets from Medicaid spendi relatives or trustees in order to protect their g-down provisions. 184Reference Gi and Ph ide for Pharmacy Management The Eden Alternative (0 him, the elderly It was a concept first proposed by Dr. William Tomas. Accordi faces three major obstacles: 1 Loneliness 2, Helplessness 3. Boredom Providing solutions for these three obstacles may increase the responsiveness that often cannot be achieved by pills or other therapeutic services. By using this concept, an assisted living facility and community based care services are evolved. 1. Assisted Living Facilities: Through the inspiration of Dr. Thomas concept of the “Eden Alternative,” care providers have come up with assisted living facilities. They are 2 other alternative to providing care to the elderly who cannot live independently but do not require skilled nursin | * Most assisted living facilities now provide an option of an independent residency in an : apartment like setting with other facilities such as group meals, laundry, cleaning ser- ) vices, and medication monitoring. The cost associated with assisted living facilities are ; | not covered by any insurance companies. Residents have to make their payments out of | their own pocket J 2 — Community Based Care: Many of the elderly would prefer not to go to nursing homes if the same level of healthcare is provided in the community. However, the current fee structure encourages the elderly to go to nursing homes since Medicare does not cover costs related to community based care centers but pays for nursing homes. 100) They provide residential care to patients suffering from tra Fs matic brain injury, strokes, cognitive disorders, and any other problems that may cause , permanent disabilities. * Services include nursing care, physical therapy, occupational therapy, speech therapy ae 5 g care, f PY. Ps SE P is and personal care. Their primary goal is to provide the highest level of care to admitted ick patients so that they can rejoin the community or slow down the progression of disease as much as possible. + The term “rehabilitation” also applies to mental health and substance abuse - organizations. 184 prvpharmacyexam.comReference Guide for Pharmacy M: Krisman and Pharmacoeconomics www.pharmacyex: Home Health Ca vide a vast rang disabled in the community. Th e, physical therapy. care for the of services which include part-time skilled nursing provide y pro- speech therapy, occupational the ipy, medical social services, medical supplies and equip- ment-related services. ‘The social service such as the bathii and dressing of patients, changing bed linen, and cooking are also provided by home healthcare centers. Th healthcare services are covered by Medicare, and Medicaid, a small portion is covered by third party insurance companies, and the rest is out of pocket costs related to home Adult Day Care: It is another form of lo chance to remain in the community. They help improve client’s overall functioning, and jerm care service that offers the elderly the also increase social interaction. They are different from a senior center in that they serve adults who are physically impaired or mentally confused and require supervision Hospice C: needed by terminally ill patients near the end of their lives. They challen; : Hospice care provides palitative care and the psychological support e traditional hospital care that often isolates patients at the time when they most ni Patients residing in hospice are allowed to meet their friends and families at all times. They can wear their own choice of clothes and eat meals to their liking with very few restrictions. The hospital staff spends unlimited time with patients and delivers more spiritual an emotional care than re fe. Medicare cov vices but only for Medicare certified hospices. ular medical ¢: costs related to hospice ser 186Reference Guide for P! nd Pharmacoeconomics ‘macy Management Important Terminology Related To Pharmacy Management and Pharmacoeconomics 1. __Aeute care: Its defined as medical care of a limited duration, provided in a hospital 6 outpatient setting, to treat an injury or short-term illness. Capitation: A prospective form of reimbursement in which a pharmacy receives a specific a onth for each patient who is eligible to rec ardless of the service provided. For example, Manan Care Pha will receive $100 per month per enrollee of an HMO regardless of to its enrollees. mount of money each n prescription re acy vices provided Catastrophic coverage: A type of insurance that pays for hi cost healthcare, usually associated with accidents and chronic illnesses and diseases, such as cancer and AIDS inter for M dicare and Medicaid Services (CMS): Administers Medicare, Med icaid, and the Child Health Insurance Programs. Formerly known as the Healthcare Financing Administration (HCFA). Chronic care: Treatment or rehabilitative health services provided to individuals on a long-term basis (over 30 days), in both inpatient and ambulatory settings. Coinsurance: It is one type of cost sharing plan in which patients pay a specified percentage (usually 20%) of all losses incurred. For example, if outpatient surgery costs $1000 to a patient and he/she has an 80/20 coinsurance plan, a predetermined mount (20%) of the total costs ($200) should be paid by the ($800) will be paid by an insurance company. ent, and the rest Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA): A federal law that requires that all employer-sponsored health plans to offer certain employees and their families the opportunity to continue, at their persona expense, health insur- ance coverage under the group plan for up to 18, 24, or 36 months, depending on the qualifying event, after it would have ceased due to the death or retirement of the employee, divorce or legal separation, resi ion or termination of employment, or bankruptcy of the employer. Co-payment: It is one type of cost-sharing plan in which the patient has to pay a fixed amount each time a service is provided. (e.g. $15 for a physician’s visit) 9. Cost-shari cal expenses (e.g. copayments, coinsurance, deductibles). A provision that requires individuals to cover some part of their medi: www.pharmacye m.com 187Reference Guide for Pharm: and Pharmacoeco 10. 12. cy Management Krisman Deductible: It is one type of cost sharing plan in which a patient has to pay a speci- fied amount durin lender year) before ben- efits are paid by a third party. For example, if a patient has an insurance plan with a $500 annual deductible and an 80/20 fee structure, and his out patient surgery costs $1000, then according to the plan, the patient has to first pay $500 (for the year-one time only) out of his own pocket and the rest ($500) will be shared on the basis of an 80/20 fee structure. a specific period of time (usually one Total outpatient surgery cost $1000 Patient's will pay a one time deductible for the fiscal year $500 80% of rest ($500) will be paid by insurance $400 20% of rest ($500) will be paid by a patient $100 Total reimbursement $1000 Now, lets assume that the same patient within the same fiscal year is admitted to a hospital for another surgery which costs about $3000. This time the patient is not required to pay the $500 deductible since it was in the same fiscal year. Therefore, this time the fee structure would be: Total surgery cost $3000 Patient's will pay a one time deductible for the fiscal year $0.00 80% of ($3000) will be paid by insurance $2400 20% of ($3000) will be paid by a patie $.600 Total reimbursement $3000 1¢ schedule: A listi 2 of accepted fees or established allowances for specified health plans; it usually rept amount the program will pay for the specified procedures. medical procedures as used in s the maximum, Related Gro fora Diagno : A prospective payment system that pays a set amou ven di ent actually costs less, the provider keeps the excess; if the treatment costs more, the provider loses. proportionate Share Hospital (DSH): A hospital that provides a large amount of ‘ompensated care and/or care to Medicaid and low-income Medicaid beneficiaries, Employment Retirement Income Security Act (ERISA): Income Security Act of 1974. ERISA is the basic law desi beneficiaries of employee benefit plans offered by employers mployee Retirement ed to protect the rights of Federal Employee Health Benefit Program (FEHBP): It is also known as the Federal Employee Plan or FEP. The health plans are made available to federal employees as part of their employment benefits. www.pharmacyexam.com 188Refer: Pharmacoeconomics .ce Guide for Pharmacy Man gement Krisman 16. in which a healthcare provider charges a patient a set amount for a specific service. 17. Formulary: A listin of a hospital or a man dispensed by a pharmacist. The physician and pharmacist are requested to use only ry drugs. of drugs, prepared by The Pharmacy & Therapeutic Committee ompany, that may be prescribed by a physician or formulary drugs unless there is a valid medical reason to use nonformul 18. Group Model HMO: An HMO that contracts with a single or multigroup of physi- cians and hospitals to provide health-related services to their plan members. There are two kinds of group model HMOs. The first type of group model is called the closed panel, in which medical services are in the HMO-owned health center or satel belong to a specially formed but le; HMO. The group is paid a negotiated monthly capitation fee by the HMO, and the physicians in turn are salaried and generally prohibited from carryi ¢ clinic by physicians who ly separate medical group that only serves the on any fee-for- service practice. In the second type of group model, the HMO contracts with an existi group of physicians to deliver medical care. Usually, an existing multispecialty practict forms an HMO. Medical services are delivered at the group's clinic facilities (both to fee-for-service paties more than one HMO. g, independent roup adds a prepaid component to its fee-for-service mode and affiliates with or nts and to prepaid HMO members). The group may contract with 19. Group practices: Three or more physicians who deliver patient care, make joint use of equipment and personnel, and divide income by a pre arranged formula 20, Health Care Financing Administrati ment of Health dicaid programs. Now it is known as the Center for Medicaid and Medi- OFA): The agency of the U.S. Depart- .d Human Services that is responsible for administering the Medi care and N 21, Health Maintenance Organization (HMO): Health Maintenance Organization is healthcare payment and delivery system involving networks of doctors and healthcare institutions. It offers consumers a comprehensive ran (often with copayments or deductibles that vary from service to service) but they can see only providers in the network. Physicians and other health professionals are often on salary or contract with the HMO to provide services. Patients are assigned to a primary care doctor or nurse as a “gatekeeper” who decides what health services are ; needed and when. ¢ of benefits at one annual fee 8 www.pharmacyexam.com 189Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Indemnity insurance: Benefits are paid in a predetermined amount in the event of a covered loss; differs with reimbursement, which provides benefits based upon actual expenses incurred. Integrated Delivery System (IDS): A group of healthcare organizations that collec- tively provides a full range of health-related services in a coordinated fashion to those using the system. Joint Commission on Acerediation of Healthcare Organizations (JCAHO): The Joint Commission On Accreditation of Healthcare Organizations, whose mission is to continuously improve the safety and quality of care provided to the public through the provision of healthcare accreditation and related services that support performance improvement in healthcare organizations. Its main purpose is to encourage the attain- ment of uniformly high standards of institutional medical care. It also establishes guidelines for the operation of hospitals and other health facilities and conducts survey and accreditation programs. Long-term care: A general term for a range of services provided to the chronically ill, physically disabled, and mentally disabled patients in a nursing home or long-term home healthcare setting. nage care: A system of healthcare delivery that influences or controls utilization of services and costs of services. Medicaid: A federally aided, state-operated and administered program which pro- vides medical benefits for certain indigent or low-income persons in need of health and medical care. The program, authorized by Title XIX of the Social Security Act, is basically for the poor. It does not cover all of the poor, however, but only persons who meet specified eligibility criteria. Subject to broad federal guidelines, states determine the benefits covered, program eligibility, rates of payment for providers, and methods of administering the program. Medical savings account (MSA): An account similar to an individual retirement account (IRA) into which employers and employees can make tax-deferred contribu: tions and from which employees may withdraw funds to pay covered healthcare expenses. Medicare: It is Title XVIII of the Social Security Amendment of 1965. The primary health insurance program for people age 65 and older, and those with certain disabilities. Medicare coverage provides acute hospital care, physician services, brief stays in skilled nursing facilities, and short-term skilled home care related to a medi- cal problem, Medicare coverage is determined by the nature of services required by the patient, not the specific diagnosis. Coverage is restricted to medical care, and does not include prescription drugs or custodial care at home or in nursing homes. It is comprised of two major programs www.pharmacyexam.comand Phau 29.4. 29.B, 30. 31. 34, Krisman Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B). The Medicare coverage for Part A has no premium and will pay 100% of a patient’s hospital costs for the first 60 days afier he/she has paid a deducible of about $720. Medicare Part B pays up to 80% of the patient’s doctor bills for a monthly premium of about $50. Medicare Pl plan available where they live, to include fee-for-service (FFS), coordinated care through HMOs, PPOs, POS plans, and PSNs, and a $6000 deductible plan with a medical savings account, union ot association plans. ies to chos This Medicare plan gives the option to benefic Medicare + Choice: Medicare Part C, formerly known as “Medicare+Choice,” is now known as “Medicare Advantage.” The introduction of the Medicare+Choice program represents what is arguably the most significant change in the Medicare ary goal of the program since its inception in 1965. As its name implies, the prin Medicare + Choice program is to provide Medicare beneficiaries with a wider range of health plan choices to complement the original Medicare option, Alternatives available to beneficiaries under the Medicare+Choice program include both the traditional managed care plans (such as HMOs) that have participated in Medicare on a capitated payment, as well as a broader range of plans comparable to those now available through private insur Medi Gap: It is also known as Medicare Supplement Insurance, a type of private insurance coverage that may be purchased by an individual enrolled in Medicare to cover certain needed services that are not covered by Medicare Parts A and B. Morbidity: An episode of sickness, as defined by a health professional. A morbidity rate is the number of such episodes occurring in a given population during a given period of time. A death. A mortality rate is the number of deaths occurring period of time. Juring a given Natality: A live birth. The natality rate is the number of live births occurring in a given population during a given period of time Per di all hospital chi ies, medications, etc.) m payment: An amount a payor will pay for one day of care, which includes ges associated with the inpatient day (including nursing care, surge Point-of-service plan (POS health maintenance organizations (HMOs) and preferred provider organizations (PPOs). A patient can decide whether to go to a network provider and pay a flat amount or to an out-of-network provider charge, : A type of managed care plan combining features of \d pay a deductible and/or a coinsurance 0 www,pharmacyexam.com 191Reference G ment Krisman | and Pharmacoeconomics | 40. 41. 42. 43. 44, 46. 41. 48. www.pharmacyexan Preferred Provider Organization (PPO or PPA): A Preferred Provider Organiza- tion (PPO) provides a list of contracted “preferred” providers from which to choose Patients receive the highest mone services to those providers on the list. If they go to a doctor or hospital that is not on the preferred provider list referred to as goit network,” then the plan covers a smaller percentage of their healthcare expenses or may cover none of their healthcare expenses based on the contract wording of the plan. ry benefit when they limit their healtheare g “out- Quality assurance: formal set of activities to measure the quality of service provided; these may also include corrective measures. Re hi insurance: Insurance purchased by a health plan to protect it a h cost cases. nst extremely Staff model HMO: An HMO that employs providers d members in the HMO's own facilities. A form of closed panel HMO. tly, and those provider see Account Receivable Collecti jod: The amount of time between when the sale is made and the cash is collec Goodwill: Benefits to a pharmacy arising out of its reputation, continued patronage favorable location and similar intangible advantages. Intangi income but do not have a readily ible assets: Assets which are of value to the pharmacy and which may produce eterminable value, e.g. Goodwill Ta inventory, fixtures, etc ible assets: Touchable assets which have physical form and qualities, e.g. AAC (Actual Acquisition Cost): The actual price paid by a pharmacy after all trade volume and cash discounts, AWP (Average Wholesale Price): The published “list price” of a particular drug product. EAC (Estimated Acquisition Cost): The third party’s estimate of the price paid by pharmacies for a particular drug product MAC (Maximum Allowa party to a pharmacy for a particular product. le Cost): The maximum amount that will be paid by a third jon cost: The cost at which a product is acquired from a direct or indirect itineludes all discounts except the cash discount. com 192Reference Guide for Pharmacy Management and Phi 49, 59, www.pharmacyexam. Cost of dispensing: The sum of all direct expenses, indirect expenses and losses due to reductions. When the cost of dispensing is be related to a specific professional fee, this sum is divided by the estimated number of prescriptions to be dispensed. product will cha ity of demand: A measure of the extent to which the sale of quantities of a e in response to a change in price or other merchandising variable. ct expenses hat occur for : Operating costs int only because it exists Indirect expense: benefit of its depart All facilitating operating costs generated by the business for the nt; overhead expenses. Vv volume change, however not always to the sam able expenses: Operating costs which increase or decrease directly with sales Differential analysis: The process of estimating the consequences of alternative ac tions that decision-makers take. Differential costs are the costs that increase when tak- ing a particular course of action. Differential revenue is the additional revenue that crues by taking a particular course of action Drug Utilization Review (DUR): Itis the type of study that is conducted by health plan sponsors to monitor the frequency and usage of prescription drugs. The review can range from assessing the number of prescriptions per member per month, to an evalua- tion of compliance with therapeutic guidelines. A review of paid claims is called “retro. spective DUR,” a review conducted at the time of prescription dispensing is known as “concurrent DUR”, and a review that is conducted prior to dispensi known as “prospective DUR.” the prescription is Earned discount: The difference between AWP and AAC is known by earned discount, This discount is normally eater for pharmacies that buy in larger volume and have more efficient purchasing practices. Exclusive Provider Arrangement (EPA): A managed healthcare system that limits the number of providers that may participate. It is also known as a “cl >sed panel.” Pharmacy Benefit Management (PBM) ‘macy and manages the logistical functions of the third p: The company which contracts with the phar fof the m on beh: ty pro corporate purchaser of a prescription drug benefit program. Prospective reimbursement: A form of reimbursement in which a pharmacy is paid in advance an amount estim ed to plan ben ied to cover prescriptions that will be dispen: eficiaries later. There are several payment methods that fall under the umbrella of PPS: DRGs (inpatient admissions); APCs (outpatient visits); RBRVS (professional services); and RUGs (skilled nursing home care), 193Reference Guide for Pharmacy Management Krisman, and Pharmacoecono} 60. Retrospective reimbursement: A form of reimbursement in which the pharmacy is paid after submitting a claim for a prescription dispensed to a plan beneficiary. Also called “fee-for-service. 61. Adjusted Avei Finanei ige Per Capita Cost (AAPCC): It is normally used by the Healthcare ‘Administration as the calculation for funds required to care for Medicare s. The risk contract reimbursement is 95% of the AAPCC fee-for-service ex: penditures on a5 year rolling average for a county ipie 62. Agency for Healtheare and Research (AHCPR): It was created by congress in 1989 under Public Law 101-239 as a public health service agency to collect and share information to improve healthcare delivery 63. Capitated payment: A contractually agreed fee (monthly, bimonthly, or annual) paid by an HMO or CMP to either an IDN, hospital, physician, or group practice, in ex change for healthcare services to enrolled members 64. Case mix: A manner of describing the tendency of a group of covered lives to utilize in terms of the frequency and intensi flecting different needs and uses of hospital resources. It can be measured based on ent’s diagnosis, severity of a patient's illness, the utilization of services, and the characteristics of a hospital. Case mix influences ALOS, cost, and scope of services provided by a hospital service of hospital admissions or services re 65, Health risk assessment (HRA): A health promotion or wellness program used to evaluate the hi site from the work locatior answers. Pro; alth status of a patient or employee, which can either be performed on-site or off- thre n an automated or written format of questions and irgeted toward cardiovascular health, with related risks and recommendations for how to reduce risks rams may ev juate general health status or may be more 66. Medicare Risk Contract: The Medicare Risk C rized in 1982 to allow Health Mainte zations to contract with Medicare. In return for a per-capita payment, the organization is at full risk for providing medically necessary Medicare services to enrolled ntract program was initially autho- \ce Organizations (HMOs) and similar organi- beneficiaries. The risk contract program has gradually grown to include 12.5 percent of beneficiaries in mid 1997. Problems with the adjusted average per capita cost and the lack of choices other than HMOs, however, appears to have limited the growth of this program and helped convince Congress to ict changes, 67. Medical Loss Ratio (MLR): The ratio between the cost to deliver medical care, versus how much revenue is made from remiums. Insurance companies often have a ‘ent or more. The tightly managed HMOs may have medical loss ratios of 75 percent to 85 percent. It is a common way to find out the efficiency of a given HMO or health plan. medical loss ratio of 96 pet www.pharmacyexam.com 194Reference Guide for Pharm: and Pharmaco 68. 69, 70. B 74. wnagement Krisman conomics MLRs have been reduced during the 1990s, from low 90% to the 70% ra recent years, they may be swinging back up as profitability is challenged. rent Service Organization (MSO): An organization that provides practice nanagement, administrative, and support service to individual physicians or group practices. Also known as a Medical Service Organization or a Shared Services Orga- nization (SSO). Per Member per Month (PMPM): Applies to a revenue or cost for each enrolled member each month. National Committee for Quality Assurance (NCQA): The National Committee for Quality Assurance (NCQA) is an independent, non-profit organization dedicated to measuring the quality of America’s healthcare. The organization is governed by a Board of Directors that includes employers, consumer and labor representatives, health plans, quality experts, regulators, and representatives from organized medicine. Its mission is to improve the quality of healthcare delivered to people achi -verywhere. To oal, NCQA’s efforts are organized around two activities, accreditation performance measurement (report cards), which are complementary strategies for producing information to guide a patient’s choice. ve this P & T Committee: The main focus of the healthcare professionals on various aspects of heal development of policy concerns, most policies are to be included in the formulary. The P & T committee also develops other policies Pertaining to drug therapy to ensure safe and cost-effective drug therapy mmittee is to develop policy and educate \care-related subjects. As far as ted to evaluate and select drugs Zero premium: In some Medicare marketplaces, there is a practice of not charging any added monthly premium (also known as zero premium) to (plan members) what is already paid for coverage of the Part B Medicare program, versus the practice of an HMO getting a monthly premium in addition to what is p ment by the patient, aid to the federal gover Accelerated Death Benefit: A benefit that allows a terminally ill insured to receive part of the face amount of their life insurance policy in advance of their death, as either in one lump sum or in installments. Psychometrics: The science of measuring the characteristics of human behavior personality, cognitive abilities, interests, or aptitudes,Reference Guide for Pharmacy Management Kei and Pharmacoeconomics 75. Validity: A test is said to be valid if it measures what it claims to measure. There is no one validity coefficient for a test. A test is always valid for some purpose, and there- fore is more valid in some circumstances than in others. 76. — Construct Validity: This refers to whether a test is measuring what it claims to as judged by accumulated evidence. A variety of statistical techniques can be used to see if the test behaves in ways predicted by the given construct. For example, a new test of computer programming skills would be expected to correlate highly with other valid tests of computer skills. Conversely, this new test would be expected to have little correlation with a different type of test (such as a test of social intelligence). 77. Concurrent Validity: A test is said to have concurrent validity if it correlates highly with a “benchmark” test of the same variables. 78. Content Validity: This refers to tests such as skills, ability or attainment tests where the domain of items is very defined. A test with good content validity represents and samples adequately from the curriculum or content domain being tested. This kind of validity involves logical comparisons and judgments by the test developers rather than a specific statistical technique. For example, a high school biology test has content validity if it tests knowledge taken from biology textbooks assigned to students and reinforced by teachers in their instructional program. 79. Criterion Validity: It is the degree to which a test predicts some criterion (measure of performance), usually in the future. To ascertain this kind of validity, evaluators look at the correlation between the test and the criterion measure, For example, a college admission test has criterion validity if it can predict some aspect of college perfor- mance (e.g., grades, degree completion). 80. Concurrent € -Related Validity: This refers to evidence of criterion validity in which predictor and criterion information are obtained at approximately the same time 81. Predictive Criterion-Related Vali his refers to evidence of criterion validity in which criterion scores are observed at a later date (e.g. after job performance), 82. Face Validity: An instrument is said to be face valid if it appears to be what it claims to measure. 83, Predictive Validity: A test is said to have predictive validity if it will predict some variable. www,pharmacyexam.com 196— Krisman alidity: This refers to the practice of using validity generalization to “synthesize” the criteria for a new job through extrapolation from known predictive criteria in other jobs. hhis refers to applying validity evidence obtained in one or more situations to other similar situations on the basis of simultaneous estimation, meta-analysis, or synthetic validation arguments. 86. ity Scales: This refers to any of a variety of scales designed to indicate e ation, faking, equivocation, or deception by test participants 87. Reliability: The extent to which we are measuring some attribute in a systematic and therefore repeatable way. For an instrument to be reliable, its results must be reproducible and stable under the different conditions in which itis likely to be use Test reliability is decreased by errors of measurement. Three commonly used types of reliability include: 1, Test-retest reliability: The degree to which a score on one instrument is equivalent to the score on the same or a parallel instrument 2. Internal consistency reliability: The degree to which items within an instrument correlate to each other 3. Inter-rater reliability: The degree to which the measuring instrument yields similar results at the same time with more than one assessor 88. Decision analysis: A technique used to aid decision-making under conditions of uncertainty by systematically representing and examining all of the relevant informa tion for a decision and the uncertainty around that informat are plotted on a decision tree. At each branch, or decision mode, the probabilities of each outcome that can be predicted are estimated. The relative work or preferences of decision-makers for the various possible outcomes for a decision can also be es n. The available choices and incorporated in a decision analysis. is (CMA): It is used to define the most economical treat- fete 89. Cost minimization analy ment among different alternatives with equal effic tiveness and safety profiles. 90. Cost effectiveness efficacy/effectiveness and safety profiles. While costs at lysis (CEA): It compares treatment alternatives with different e calculated in monetary value, outcomes are valued in clinical terms (e.g. drop in value of HbA 1c, blood pressure, number of cases cured). Moreover, in the so-called lifetime CEA, outcomes ined with the new treatn ed with the 8 of lif are measured as tas comp: standard of care treatment www.pharmacyexam.com 197Reference Gi 1. 92. 93. 94, 96. 97. 98. 99, ide for Pharmacy Management Krisman Cost-utility analysis (CUA): In this type of analysis, the cost is measured in mon: etary value and outcomes in clinical terms incorporating patient preferences (e.g. quality of life measures). Often the utility measure used is a “quality adjusted life year” (QALY) gained. QALY incorporates both quantity and quality of life. The use of QALY as a measure of outcomes, allows a direct comparison among cost-utility ratios preferred treatment alternative is that with the lowest cost per QALY. Possible alternative lents (HYE) or saved young life equivalents. The first measure is very difficult to compute, while the latter is not as broadly known and used as QALYs. from different pharmacoeconomic analyses. Th jeasures are healthy year equiva Cost-benefit analysis (CBA): Both costs and benefits of a treatment are measured in monetary values. Future costs and benefits are discounted to their current value Although considered the best economic analysis, its application in pharmacoeconomics and healthcare in general is limited, due to the difficulties in assigning a monetary value to health outcomes and a patient's life. Ambulatory Procedure Classifications (APCs): Enacted by the federal government in 2000, a prospective payment system for outpatient services, similar to DRGs, which reimburses a fixed amount for a bundled set of services. APC: A flat fee payment system implemented by the federal government to control the payment for outpatient services provided to Medicare recipients Breakeven analysis (BEA): A technique to analyze the relationship among revenues, costs, and volume. It is also called Cost-Volume-Profit analysis (CVP) Breakeven point: The point where total revenues equal total costs. Future Value (FV): It is defined as what an amount invested today will be worth at a given time in the future using the compounded interest method, which accounts for the time value of money Horizontal analysis: A method of analyzing financial statements which look at the percentage change in a line item from one year to the next. It can be calculated by he following formula: (subsequent year - previous year) / previous year Trend analysis: A type of horizontal analysis that looks at changes in line items compared to a base year. It can be calculated by using the following formula: [(any subsequent year - base year)/base year] x 100. www.pharmacyexam.com 198Referen Suide for Pharmacy Management Krisman and PI 100. ysis: A method to analyze the financial statements which answer the neral questions: What perce known as common size analysis because it converts every line item into a percent: ‘age of one line item is another line item? It is also thus allowing comparisons among the financial statements of different organizations. 101. Sunk costs: Costs incurred in the past. 102. Sint can be liquidated at maturity ng fund: A fund into which monies are set aside each year to ensure that a bond 103. Pure Food and Drug Act of 1906: Congress passed this law in 1906 to protect people from unsanitary and poorly labeled food. 104. Food, Drug and Cosmetic Aet of 1 marketed until proven safe by the FDA for public use. 138: This law suggests that no new drug can be 105. Durham Humphrey Amendment of 1951: This law is also known as the “Prescription Drug Amend fe prescriptions and prescription refills. It su rentiates between prescription and OTC drugs. It also autho- sts that each drug should be la- beled “Caution: Federal law prohibits dispensing without a prescription. 106. Kefauver Harris Amendment of 1962: ment”. This also establishes Good Manufacturing Practice requirements. is also known as the “Drug Efficacy Amend- Ww indicates that new approved drugs must be safe as well as effective. It 107. Med Amendment of 1976: This law was passed in 1976, and includes: I The classification of medical devices afety and efficacy of medical devices 108. Orphan Drug Act of 198: that affect very few people). Congress passed this ‘This law was passed for orphan drugs (drugs for diseases t to provide tax relief and other incentives for the manufacturers to develop and market orphan drugs. 109. Drug Price Competition and Patent Term Restoration Act of 1984: This law is also known as the Waxman Hatch Amendme This law was passed to make generic drugs pre readily available to the public. This law also provides more incentive to innovative pharmaceutical companies and encourages them to develop new drugs. 110. Poison Prevention Act: This law was implemented to prevent the death of children from accidental poisoning. This act was passed in 1973. It indicates that all dispensed drugs are required to be in a child proof container. www.pharmacyexam.com 199Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Table-1 Name Causative organism Recommended dose Diptheria Corynebacterium diphtheria Adult dose, boost every 10 years. H Influenza b H.influenza Most children have 3 to 4 doses between age 2 months to months, | Hepatitis A HAV 3 doses at I month, 6 to 12 months / 2 years to old, and for patients age 18 years, while 2 doses every 6 apart for patients age more than 18 years. Hepatitis B HBV 3 doses at 1 to 2 months old for infants and adults } Influenza Influenza 1 dose every year Measles, Mumps Measles, Mumps MMR vaccine at 12-15 months and Rubella of age, and Rubella and again at 4 0 6 years of Pertussis B Pertusis It should be 6 weeks to 7 months, iven to children age: Poliomyelitis Polio virus It should be given at 2 months, 4 months, 12-18 months, and at 4 to 6 years, Pneumococcal S. pneumonia 1 dose Tetanus Clostridium tetani 3 to 4 doses plus booster every 10 years. Table-2 Drugs with a_prolonged half-life Chlorpropamide Bromocriptine Corgard * Azithromycin Piroxicam Clofazimine Amiodarone www.pharmacyex: a 200Reference Guide for Pharmacy Management and Pharm Table-3 DISULFIRAM REACTION PRODUCING DRUGS Metronidazole Chlorpropamide Cefotetan Cefoperazone Moxalactam Cefamandole Tolbutamide Acetohexamide Glyburide Glipizic Disulfiram DRUGS THAT PRECIPITATE DISULFIRAM-LIKE REACTIONS WITH TABLE-3 Alcohol Benadryl Elixir Digoxin Elixir Lanoxicap LET AGGREGATION INHIBITORS Cefamandole Cefoperazone Moxalactam Cefotet Plicamycin Ketorolac Aspirin Ticlopidine Clopidrogel URINE DISCOLORATION PRODUCING DRUGS Phenazopyridine Senna Rifampin * Phenolphthalein Levodopa Sulfasalazine www.pharmacyexam.com 201Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics DRUGS THAT REQUIRE A PATIE PACKAGE INSERT * Isotretinoin | * Oral contraceptives * Isoproterenol * — Ticllopidine Progesterone Estr Intrauterine devices } DRUGS CONTRAINDICATED DURING PREGNANCY Isotretinoin Tetracycline Chloramphenicol Sulfonamide Misoprostol Finasteride * Methimazole + Warfarine Metronidazole Valproic acid Lithium carbonate Alcohol DRUGS & THEIR NORMAL BLOOD THERAPEUTIC CONCENTRATIONS oxin 0.7 t0 14 ng/ml Primidone 04 to 12 meg/ml nytoin 10 to 20. meg/ml Vancomycin 05 to 15 meg/ml Amikacin 10 Lithium 0.6 to 1.2 mEq/l * — Carbamazepine10 to 20 Valproic acid 40 to 100 meg/n Gentamicin 2 Tobramycin 2 Fosphenytoin 10 to Theophylline 10 to 2 Streptomycin 5 itoxin 09 t0 25 meg/ml * — Quinidine 02 to 06 * Carbamazepine 04 to 12 * Phenobarbital 10 to 40 " Haloperidol 05 to 20 ng www.pharmacyexam.com 202Reference Guide for Pharmacy Management and Ph ANTIDOTE OF DRUGS Naloxone=Narcan Nalmefene=Revex Naltrexon= Revia Digoxinfab=Digibind LeucovorinCa**= Wellcovorin Mesna = Mesnex Vitamin K Protamine sulfate Deferoxamine = Desferal Dimercaptol Sodium thiosulfate Flumazenil=Romazicon Physosti Antilirium mi Acetylcysteine= Mucomyst Dexrazoxane=Zinecard Pralidoxime = Protopan Glucagon Edetate disodium Edetate calcium disodium Atropine Hydroxocobalamin LeucovorinCa*~= Wellcovorin www.pharmacyexam. Krisman, DRUGS Opioid Opioid Opioid Digoxin, Digitoxin Methotrexate, Trimethoprim, Cyclophosphamide, Ifosfamide Coumadin Heparin Iron Arsenic, Gold Cyanide Benzodiazepine Atropine, Anticholinergic Acetaminophen Doxorubicin Organophosphorus compound Insulin alis toxicity, hypercalcemia Acetylcholine, Cholinergic Cyanide Pyrimethamine 203Reference Guide for Pharmacy Management and Pharmacoeconomics ABBREVL Accutane * Cipro * Micronase * ~——DiaBeta * Retin-A * Doxyeycline " Bactrim * — Griseofulvin * Carbamazepine * Methotrexate * Sulfonylureas * — Noroxin * (ONS aa of each * DAW Nand V nausea and vomiting * git ac before meals am, pe. after meals = pm ad. right ear «hs as. left ear Meson au. both ears oreachear * os. qd daily +o, bid twice daily 07 tid three times daily * po. qid * pr qod * qh Pt * pm DRUGS Rifampin Carbamazepine Phenobarbital Troglitazone Phenytoi Nicotine Omeprazole Rifabutin THAT CAUSE ENZYME INHIBITION Ciprofloxacin * Clopidogre! Cimetidine * —— Ritonavir Erythromycin Fluvoxamine Ketoconazole Nelfinavir www.pharmacyexam.com Rheumatrex Sulfonamide Tetracycline Thiazide diuretic Tricyclic antidepressant Glucotrol dispense as written drop morning evening at bed time right eft eye both eyes or each both eyes by mouth per rectum every 6 hours as neededManagement Krisman SCOLOR PRODUCING DRUG Drug Color Rifampin Red orange Phenolphthalein Red Phenazopyridine Red Antacid White Kao-pectin Black Iron salt Black brown Warfarin Black DRUGS THAT NEED TO BE STORED IN REFRIGERATOR Calcimar Wycillin (Injection) Xalatan (opthalamic solution) Bicillin ( Injection) Viroptic (opthalamic solution) Permapen (Injection) Opthetic (opthalamic solution) Intron-A (Injection) Fluorocaine (opthalamic solution) Epogen (Injection) Occusert Pilo Neupogen (Injection) Phospholine Iodine (opthalamic solution) Hyperstat (Injection) Erythromycin Ethyl Succinate Suspension Sandostatin (Injection) Promethazine suppository Novolin (Injection) Fosphenytoin (Injection) Humulin (Injection) Bicillin-LA (Injection Regranex ( Cream ) Mose (Injection) Harvix-A (Injection) Neupogen (Injection) Thyrolar Mycostatin pastilles Fortovase capsules Norvir Capsules Calcitonin Salmon (Injection, nasal spray) Bacid (dietary supplement) Lactinex (dietary supplement) Sterile Bacitracin powder Diltiazem injection Pepcid injection Urokinase Sus-Phrine (injection) Domase-alpha Tetanus Toxoid Hepatitis-A MMR vaccine n.com 205Ref Guide for PI and Pharmacoeconomics macy Management Krisman COMMONLY U t ICAL CALCULATION: * 1 kilogram 1000 grams 1000 mill 1000 micrograms 0.001 mil 10 grams 10° grams 1 gram * TL milligr I microgram rams ram 1 microgram 1 nanogram I grain 65 milligrams | liter 1000 ce * 1 ounce (07) 30 ce * 16 ounce (oz) 480 cc = I pint 1 pint 480 cc 1 quart 960 ce 1 gallon 3840 ce = 4 quarts * 2.2 Ibs 454 grams | teaspoonful Sec | tablespoonful 15ce ‘ | teacupfu 120 ce Density weight/volume Proof gallon (gal x % viv strength) / 50% v/v % strength = proof spirit /2 Proof (gal x proof spirit) / 100 PV =. .9 0kT PV WMxRxT Equivalent wt molecular weight / number of valence mEq equivalent weight in mg / 1000 mOsmol/L (weight of substance [g/L] x no of species x 1000) / mol wt pH pKa + log (salt/acid) Young (child) in years /age +12) x adult dose Clark’s (weight in Ibs / 150) x adult dose * —— Child’s dose (body surface area of child / 173 mm?) x adult dose . Fried’s r = (age in months / 150) x adult dose ‘ FP of blood = 0.52°C * Each gm of hydrous dextrose provides. = ~—-3.4 calories / kcal * Each gm of anhydrous dextrose provides 4 calories / kcal * Each gm of fat provides 9 calories / kcal Each gm of protein/aminoacid provides Each gm of medium chain triglyceride (met) * Each gm of glycerol provides * Each cc of alcohol provides = * 1 ce of 10% fat emulsion provides 1 cc of 20% fat emulsion provides 2.0 calories / keal www.pharmacyexam.com 206"U.S Healthcare _ PeaseReference Guide for Pharmacy Management and Pharmacoeconomics Krisman U.S Healthcare System Ambulatory Care: It is defined as different types of health-related services provided ‘0 patients for which they are not required to stay overnight or be hospitalize. For example, outpatients services provided by physicians In the U.S., ambulatory care services are provided by 1. Hospital outpatient centers 2. Community health centers 3 mbulatory surgery centers 4. Hospital emergency departments 5. Free standing emergency centers 6. Family planning centers 7. Clinical laboratory services 8. Voluntary health services 9 Hospi 10. Long-term care services 10.a. Nursing homes services 10.b. Rehabilitation facilities Il. Home health care 12, Adult day care 13, Hospice care 1. Hospital outpatient Phis type of ambulatory care service is normally pro vided by hospitals. Patients with non-urg of clinics. nt medical problems may visit these types cs are normally separated from hospital emergency departments, They may be assified as general or specific according to their specialization. For example. a diabetic clinic center, oncology clinic cente Hospitals are expanding clinics in the area away from hospitals in order to better Serve the community and earn an extra income. There is also another incentive for hospitals to expand the clinic-they can build up a relationship with patients and encourage them to use a clinic’s own hospitals for other major medical problems Community health centers: Community health centers began to develop in the late 1960s. Initially, funding for these centers was received from the office of economic Opportunity and later from U.S. Department of Health, Education and Welf 18 www.pharmacyexam.com 179Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Community centers provide health-related services to a defined population of poor people. Before the existence of cor “ome patients received healthcare from health departments and hospitals. However in order to receive help, patients had to wait in a line for hours. To overcome these problems and to provide better health-related services to the poor and needy people, nmunity health centers were developed by the U.S. Department of Health, Educa- tion and We munity health centers, the poor people and low fare. althcare technology and new Ambulatory surgery centers: Due to advancement in hi reimbursement patterns from third parties payers, there has been an increased in the number of outpatient surgeries. In old days, the surgery that may require a stay hospital for at least 2 to 3 days, has now been replaced by a same day discharge. This ificantly help the cost-cutting strategy of current healthcare by avoiding unnecessary hospitalization in the . In 1999, there were over 2700 freestanding outpatient surgery centers, up from 2400 1996. In addition, Medicare now also covers many outpatient surgeries which may help outpatient surgery centers to compete against hospitals, and cut down unneces sary hospitalization costs. Hospital Emergency Departments: The Emergency Room (ER) or Emergency Department (ED) is the most commonly used setting for emergency care. In 1986, th federal government passed an “antidumping law,” which indicates that hospitals cannot inquire about a patient's insurance status before providing emerg ncy medical * However, this causes a nizations ajor problem to ERs since most manage care org refuse to pay for emergency care without prior authorization. Also, most patients receive emergency medical care either insured or uninsured; this will increase the financial burden on hospitals. The receive the emergency care and are discharg. -mergency room is often described under outpatient services since most patients J on the same day. Freestan ur threatening conditions. g Emergency Centers: care centers. They provide episodic emergency care 24 hours a day Freestanding emergency centers are often as for non-life They provide most care on a “walk-in” or appointment basis. Unlike medical clinics. they require payment at the time of service provided. Most of them do not use insur- ance companies for reimbursements. The form of payment could be check, cash, or credit card. However, they provide complete documentation about services provided bursement after to patient to submit to insura payment is made to the center nce companies in order to receive r www.pharmacyexam.com 180TTT Reference Guide for Pharmacy Management and Pharmacoeconomics 6. Eamily Planning Centers: It was first established in 1970 when Cor \gress passed Title X of the Public Health Service Act. Under this ttle, the federal provides all fund overnment 8 t0 establish family planning centers. Family planning centers Provide a wide range of services which include: 1. Gynecological examinations 4. Routine child health screenings 2. Breast or cervical screenings 5. Sexually transmitted disease 3. Contraceptive information and supplies diagnosis and treatment Bs ices: They provide a variety of laboratory analysis to hysicians. Most times, physicians collect and send to a nearby clinical laboratory run by a license pathologist. In some instances, physicians may send patients to the lab. nder the 1988 Clinical Laboratory Improvement Amendment Act, all clinical labora tories are required to ensure the quality of test results 8. Yoluntary Health Agencies: There are many voluntary health agencies which pro: Vide ambulatory care services to patients. These agencies are focused to treat specific diseases and are funded largely by charity. Examples of such agencies are A. American Heart Association B. American Diabetic Association The services provided by these agencies are not limited to healthcare: they often Support research, arrange education programs to increase awat eness of patients, and also finance health-needed services, Hospital illnesses may Hospitals are considered as the place where patients with acute or severe I care. It is a place where patients have access to all medical field specialists, such as physicians, pathologists, nurses, pharmacists, radi- ologists, and anesthetics. Generally, a hospital is classified in termas of the physical makeup and quantitative nature of services provided ‘ceive medi Hospitals are classified by Ownership Length of stay Type of service Bed capacity 1 3. A. www.pharmacyexam.com 181Reference Gi de f Krisman Pharmacy M and Pharmacoeconomics B. Ownership hospitals: Depending on the ownership of the hospital, it can be subdivided into three major categories: Nonprofit hospitals For profit hospitals Government hospitals Nonprofit hospitals: These are types of hospitals where profits earned by hospitals must be turned back into the hospitals operation or community welfare. They have a board of trustees who voluntarily participate to run and operate hospitals without receiving any pay. They are exempt from tax requirements. However, in order to qualify for tax-exempt, hospitals must obey a certain criteria provided by federal statues such as hospitals may not refuse to provide medical care to patients who are unable to pay a fee for service. Most church-affiliated hospitals fall into this category For Profit hospitals: Unlike nonprofit hospitals, these hospitals operate with the goal of making a profit. The profit earned by these hospitals is distributed to their sharhold s who elect the board of directors to operate the hospital. te more iciently with strict cost effectiveness. Therefore, many times for profit hospitals are criticized for paying more attention to cost-cutting strategy than to quality of care. Due to peer pressure from shareholders and owners, for profit hospitals op: hese types of hospitals are owned and operated by federal governments. These include 27 hospitals for the Army, 19 for the Navy, 44 for the Airforce, and 144 for veterans. Length of stay: Depending on length of stay of a patient, a hospital can be divided into two different categories: Short-term hospitals Long-term hospitals Short-term hospitals: The average length of stay is less than 30 days. Long-term hospitals: The average length of stay is more than 30 days. ‘Type of service: Dependin into two subcategories: pes of services, a hospital can be divided General hospital Special hospital (Cancer, Psychiatric or Pediatric) ‘www.pharmacyexam.com 182Reference Guide for P irmacy Management Krisman and Pharmacoeconomies Bed capacity: Hospitals are also classified according to their bed capacity Under 50 beds 50-99 beds 100-199 beds 200-299 beds 300-399 beds 400-499 beds 500 beds and over Long-term care services: As the name suggests, it offers health-related services to Patients for an extended period of time. The members of long-term care are mostly Patients of any age with conditions such as birth defects, spinal cord injuries, mental ay affect a patient's ability to per impairments, or any other chronic conditions that 1 form normal routine tasks. However, the majority of long-term patients are elderly. The health related services erm care are very expensive. Facilities that provide long-term care can be subdivided into two major categories: associated with long Nursing hor Rehabilitation facilities ies services Nursing home: represent the large majority of long-term healthcare. The federal government divides nursing homes into two major categories: A skilled nursing facility (SNF) An intermediate care facility (ICF) Skilled nursing facility (SNF): It is a nursing home that has been certified as meet- ing federal standards within the meaning of the Social Security Act. It provides 24- hour nursing home services with medical care which is equivalent to hospitals The members of SNFs are patients who are sul fering from long-term illnesses. In a recent year, a number of hospitals have their own skill nursing units. These will facilitate hospitals to use their acute care beds more efficiently. Hospital-based nursing homes provide better health related services due to their sufficient staffing, m.com 183Reference Guide for Pharmacy Manager I. Krisman coeconomies Intermediate care facility (CR): It is also a nursing home that has been certifi of the Social Security Act. They pro- vide less extensive health related services to patients compared to SNFs. neeting federal standards within the meaning ‘They have regular nursing services, however it is not 24-hour. The members of ICFs include patients who are not capable of living on their own, yet are not necessarily ill enough to need 24 hour nursing care. Reimbursement for nursing home services The cost to cover nursing home care has been increased dramatically. An average pre- mium to obtain or qualify for long-term care services ranges from $400 to $4000 per year depending on the medical condition of patients. Unfortunately, many patients cannot afford these hig Medicaid or state or federal granted pro, h premium rates, and consequently rely on Medicare, ‘ams for services. Even though Medicare does not cover nursi required to obtain services, he should chose an intermediate care f home related services, if a patient is Ct te care ility in order to reimbursement from Medicare. Since the majority of patients require interm services rather than extended (skilled) nursi intermediate care facilities when the time comes to pay the reimbursement. services, Medicare is mor favorable to Prior to 1997, skilled nursing homes were reimbursed by Medicare on the basis of cost plus a margin of profit. However, after the Balance Budget Act of 1997, Medicare has started to pay nursing homes on the basis of flat rate per day. Due to this, many nursing homes are currently facin; financial problems, and consequently giv 2 poor medic care. Unlike Medica reside below th fe, Medicaid reimburse both SNFs and ICFs. Howev poverty line in order to rec patients must The eligibility and coverage for SNFs and ICFs under Medicaid plans depends on the eatly. Since Medicid only covers health-r he patient has a very low inco of “spending down,” which lated services states and may vary g many elderly use the strate; involves paying out of pocket until a person becomes poor enough to qualify for Medicaid benefits, ome elderly also transfer their assets to relatives or trustees in order to protect their assets from Medicaid spendin down provisions. www.pharmacyexam.com 184Reference Guide for Pharmacy Management and Pharmacoeconomics Krisman It was a concept first proposed by Dr. William Tomas, According to him, the elderly faces three major obstacles: 1 2, Helplessness 3. Boredom Providing solutions for these three obstacles may increase the responsiveness that often cannot be achieved by pills or other therapeutic services. By using this concept, an assisted living facility and community based care services are evolved 1 ssisted Living Facilities: Through the inspiration of Dr. Thomas concept of the “Eden Alternative,” care providers have come up with assisted living facilities. They are an other alternative to providing care to the elderly who cannot live independently but do not require skilled nursing care. * Most assisted living facilities now provide an option of an independent residency in an apartment like setting with other facilities such as group meals, laundry, cleani vices, and medication monitoring, The cost associated with assisted living facilities are not covered by any insurance companies. Residents have to make their payments out of their own pocket 2. Community Based Care: Many of the elderly would prefer not to go to nursing homes if the same level of healthcare is provided in the community. However, the current fee structure encourages the elderly to go to nursing homes since Medicare does not cover costs related to community based care centers but pays for nursing homes. 10(b) Reh 2 They provide residential care to patients suffering from trau: matic brain injur permanent disabilities strokes, cognitive isorders, and any other problems that may cause Services include nursing care, physical therapy, occupational therapy, speech therapy and personal care, Their primary goal is to provide the highest level of care to admitted patients so that they can rejoin the community or slow down the progression as much as possible, of disease The term “rehabilitation” also applies to mental health and substance abuse organizations. www.pharmacyexam.com 185Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics i. Home Health C The: vide a vast range of services which include part-time skilled nursing care, physical therapy rovide care for the disabled in the community. They pro: Pr ational therapy, medical social services, medical supplies speech therapy, 0% id equip: ment-related servi The social service such as the bathing and dressing of patients, changing bed linen, and cooking are also provided by home healthcare centers. The costs related to home healthcare services are covered by Medicare, and Medicaid, a small portion is covered by third party insurance companies, and the rest is out of pocket. 12. Adult Day Care: It is another form of long-term care service that offers the elderly the o remain in the community. They help improve client’s overall functioning, and also increase social interaction. They are different from a senior center in that they serve physic: ally confused and require supervision. chance adults who a ly impaired or m 13. Hospice Care: Hospice needed by terminally ill patients near the end of their lives. They challen hospital care that offen isolates patients at the time when they most need support. ‘are provides palitative care and the psychola P P psy al support traditional Patients residing in hospice are allowed to meet their friends and families at all times. They can wear their own choice of clothes and eat meals to their liking with very few restrictions. The hospital staff spends unlimited time with patients and delivers more spiritual and emotional care than regular medical care. M vices but only for Medicare certified hospices. sdicare covers costs related to hospice ser- www.pharmat 186Reference Guide for and Pharmacoeconomics icy Management Krisman Important Terminology Related To Pharmacy Management and Pharmacoeconomics 1, Acute care: It is defined as medical care of a limited duration, provided in a hospital or outpatient setting, to treat an injury or short-term illness c specific amount of money each month for each patient who is eligible to receive a prescription regardless of the service provided. For example, Manan Care Ph: will receive $100 per month per enrollee of an HMO regardless of services provided to its enrollees. tion: A prospective form of reimbursement in which a pharmacy receives a macy Catastrophic coverage: A type of insurance that pays for high-cost health usually associated with accidents and chronic illnesses and diseases, such as cancer and AIDS. 4. Center for Medicare and Medicaid Services (CMS): Administers Medicare, Med- icaid, and the Child Health Insurance Programs. Formerly known as the Healthcare Financing Administration (HCFA) Chronic ca lon, Treatment or rehabilitative health services provided to individuals on a m basis (over 30 days), in both inpatient and ambulatory settings. 6 Coinsurance: It is one type of cost sharing plan in which pat percentage (usually 20%) of alll losses i nts pay a specified uurred. For example, if outpatient su costs $1000 to a patient and he/she has an 80/20 coinsurance plan, a predetermined amount (20%) of the total costs ($200) should be paid by the patient, and the rest (S800) will be paid by an insurance company. 7. Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA): A federal Jaw that requires that all employer-sponsored health plans to offer certain employees e, at their persona expense, health insur- ance coverage under the group plan for up to 18, 24, or 36 months, depending on the qualifying event, after it would have ceased due to the death or retirement of the employee, divorce or legal separation, resignation or termination of employment, or bankruptcy of the employer and their families the opportunity t0 contin 8. Co-payment: It is one type of cost-sharing plan in fixed amount each time a service is provided. ( which the patient has to pay a $15 for a physician’s visit), 9. Cost-sharing: A provision that requires individuals to cover some part of their medi- cal expenses (e.g. copayments, coinsurance, deductibles), www.pharmacyexam.com. 187Reference Guide for Pharmacy Management Krisman } and Pharmacoeconomies } 10. Mu. 14. Deductible: It is one type of cost sharing plan in which a patient has to pay a spec fied amount during a specific period of time (usually one calender year) before bet efits are paid by a third party. For example, if a patient has an insurance plan with a $500 annual deductible and an 80/20 fee structure, and his out patient surgery costs $1000, then according to the plan, the patient has to first pay $500 (for the yea time only) out of his own pocket and the rest ($500) will be shared on the basis of an 80/20 fee structure. Total outpatient surgery cost $1000 Patient's will pay a one time deductible for the fiscal year $500 80% of rest ($500) will be paid by insurance $400 20% of rest ($500) will be paid by a patient $100 Total reimbursement $1000 Now, let's assume that the same patient within the same fiscal year is admitted to a hospital for another surgery which costs about $3000. This time the patient is not required to pay the $500 deductible since it was in the same fiscal year. Therefore, this time the fee structure would be: Total surgery cost $3000 Patient's will pay a one time deductible for the fiscal year $ 0.00 80% of ($3000) will be paid by insurance $ 2400 20% of ($3000) will be paid by a patient $600 Total reimbursement $3000 Zee schedule: A listing of accepted fees or established allowances for specified medical procedures as used in health plans; it usually represents the maximum amount the program will pay for the specified procedures Diagnosis Related Groups (DRGs): A prospective payment system that pays a set amount for a given diagnosis. If th reatment actually costs less, the provider keeps the excess; if the treatment costs more, the provider loses. Disproportionate Share Hospital (DSH): A hospital that provides a large amount of uncompensated care and/or care to Medicaid and low-income Medicaid benefi Employment Retirement Income Security Act (ERISA): Employee Retirement Income Security Act of 1974. ERISA is the basic law designed to protect the rights of beneficiaries of employee benefit plans offered by employers. Federal Employee Health Benefit Program (FEHBP): It is also known as the Federal Employee Plan or FEP. The health plans are made available to federal employees as part of their employment benefits www.pharmacyexam.com 188Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics 16. 17. 18. 20. Fee-For-Serv' set amount for a specific service. A billing system in which a healthcare provider charges a patient a Formulary: A list prepared by The Pharmacy & Therapeutic Committee of a hospital or a manage care company, that may be prescribed by a physician or dispensed by a pharmacist. The physician and pharmacist are requested to use only formulary drugs unless there is valid medical reason to use nonformulary drugs. Group Model HMO: An HMO that contracts with a single or multigroup of physi cians and hospitals to provide health-related services to their plan members. There are two kinds of group model HMOs. The first type of group model is called the closed panel, in which medical services are delivered in the HMO-owned health center or satellite clinic by physicians who belong to a specially formed but legally separate medical group that only serves the HMO. The group is paid a negotiated monthly capitation fee by the HMO, and the physicians in turn are salaried and generally prohibited from carrying on any fee-f service practice. In the second type of group model, the HMO contracts with an existing, independent group of physicians to deliver medical care. Usually, an existing multispecialty group practice adds a prepaid component to its fee-for-service mode and affiliates with or forms an HMO. Medical services are delivered at the group's clinic facilities (both to e-for-service patients and to prepaid HMO members). The group may contract with more than one HMO. fe Group pra Phree or more physicians who deliver patient care, make joint use of equipment and personnel, and divide income by a pre arranged formula. Health Care Financing Administration (HCFA): The agency of the U.S. Depart- ment of Health and Human Services that is responsible for administering the Medi- care and Medicaid programs. Now it is known as the Center for Medicaid and Medi- care Services (CMS) Health Maintenance Organization (HMO): Health Maintenance Organization is a healthcare payment and delivery system involving networks of doctors and healthcare institutions. It offers consun ers a comprehensive range of benefits at one annual fee (often with copayments or deductibles that vary from service to service) but they can see only providers in the network. Physicians and other health professionals are often on salary or contract with the HMO to provide services. Patients are assigned to a primary care doctor or nurse as a “gatekeeper” who decides what health services are needed and when. www.pharmacyexam.com 189Reference Pharmacy Management Krisman and Pharmacoeconomics | 22, Indemnity insurance: Benefits are paid in a predetermined amount in the event of a covered loss; differs with reimbursement, which provides benefits based upon actual expenses incurred. 23, Integrated Delivery System (IDS): A g tively provides a full range of health-related services in a coordinated fashion to those using the system. ‘oup of healthcare organizations that collec: 24. Joint Commission on Accrediation of Healthcare Organizations (JCAHO): The Joint Commission On Accreditation of Healthcare Organizations, whose mission is to continuously improve the safe re provided to the public through the provision of healthcare accreditation and related services that support performance and quality of improvement in healthcare organizations. Its main purpose is to encourage the attain ment of uniformly high standards of institutional medical care. It also establishes guidelines for the operation of hospitals and other health facilities and conducts, survey and accreditation programs. 25. Long-term care: A general term for a range of services provided to the chronically ill, physically disabled, and mentally disabled patients in a nursing home or long-term home healthcare setting 26. care: A system of healthcare delivery that influences or controls utilization sand costs of services. 27. A federally aided, state-operated and administered program which pro- gent or low-income persons in need of health Title XIX of the Social Security Act, is basically for the poor. It does not cover all of the poor, however, but only persons who dical benefits for certain indi dical care. The prc m, authorized by ‘meet specified eligibility criteria. Subject to broad federal guidelines, states determine the benefits covered, pr gram eligibility, rates of payment for providers, and methods of administering the program 28. Medical savings account (MSA): An account similar to an individual retirement account (IRA) into which employers and employees can make tax-deferred contribu- tions and from which employees may withdraw funds to pay covered healthcare expenses. 29. Medicare: It is Title XVIII of the Social Security Amendment of 1965. The primary health insurance program for people age 65 and older, and those with certain disabilities. Medicare coverage provides acute hospital care, physician services, brief stays in skilled nursing facilities, and short-term skilled home care related to a medi ned by the nature of services required by pecific diagnosis. Coverage is restricted to medical care, and does cal problem. Medicare cover the patient, not th not include prescription drugs or custodial care at home or in nursing homes, It is comprised of two major programs: www.phi exam.com 190Reference ¢ ide for Pharmacy Management and Pharmacoeconomics Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B). The Medicare coverage for Part A has no premium and will pay 100% of a patient's hospital costs for the first 60 days after he/she has paid a deducible of about $720. Medicare Part B pays up to 80% of the patient’s doctor bills for a monthly premium of about $50. Medi plan available where they live, to include fee-for-service (FFS), coordinated care through HMOs, PPOs, POS plans, and PSNs, and a $6000 deductible plan with a medical savings account, union or association plans. re Plus: This Medicare plan gives the option to beneficiaries to chose any 29.B. Medicare + Ch now known as “Medicare Advantage.” The introduction of the Medicare+Choic program represents what is arguably the most significant change in the Medicare program since its inception in 1965. As its name implies, the primary goal of the Medicare + Choice program is to provide Medicare beneficiaries with a wider range of health plan choices to complement the original Medicare option. Alternatives available to beneficiaries under the Medicare+Choice program include both the d care plans (such as HMOs) that have participated in Medicare on a capitated payment, as well as a broader range of plans comparable to those now available through private insurance. ice: Medicare Part C, formerly known as “Medicare+Choice,” is traditional man: 30. Medi Gap: It is also known as Medicare Supplement Insurance, a type of private insurance coverage that may be purchased by an individual enrolled in Medicare to cover certain needed services that are not covered by Medicare Parts A and B 31. Morbidity: An episode of sickness, as defined by a health professional. A morbidity rate is the number of such episodes occurring in a given population during a period of time. 32. Mortality: A death. A mortality rate is the number of deaths occurring during a given period of time. Natality: A live birth, The natality rate is the number of live births occurrin; given population during a given period of time. 34, Per diem payment: An amount a payor will pay for one day of all hospital charges associated with the inpatient day (including nursing care, surger- ies, medications, etc.), re, Which includes Point-of-service plan (POS): A type of managed care plan combining features of health maintenance organizations (HMOs) and preferred provider organizations (PPOs). A patient can decide whether to go to a network provider and pay a flat amount or to an out-of-network provider and pay a deductible and/or a charge. insurar www.pharmacyexam.com 191Reference Guide for Pharmacy Management Krisman, and Pharmacoeconomies 36. _ Preferred Provider Organization (PPO or PPA): A Preferred Provider Organi tion (PPO) provides a list of contracted “preferred” providers from which to choose Patients receive yest monetary benefit when they limit their healthcare services to those providers on the list. If they go to a doctor or hospital that is not on the preferred provider list referred to as going “out-of-network,” then the plan covers a smaller percent of their healthcare expenses or may cover none of their healthcare expenses based on the contract wording of the plan 37. Qual provided; these n ty assurance: A formal set of activities to measure the quality of service ay also include corrective measures, 38. Reinsurance: Insurance purchased by a health plan to protect it high cost cases against extremely 39. Staff model HMO: An HMO that employs providers directly, and those provider see members in the HMO’s own facilities, A form of closed pane! HMO. 40. Account Receivable Collection Period: The amount of time between when the sale is made and the cash is collected. 41. Goodwil favorable location and similar in jenefits to a pharmacy arising out of its reputation, continued patronag tangible advantages. 42. Intangible assets: Assets which are of value to the pharmacy and which may produce income but do not have a readily determinable value, e.g. Goodwill ngible assets: Touchable assets which have physical form and qualities, e.g. inventory, fixtures, etc 44, AAC (Actual Acquisition Cost): The actual price paid by a pharmacy after all trade volume and cash discounts. AWP (Average Wholesale Price): The published “list price” of a particular drug product 46. AC (Estimated Acq pharmacies for a particular drug product Cost): The third party’s estimate of the price paid by MAC (Maximum Allowable Cost): The maximum amount that will be paid by a third party to a pharmacy for a particular product. 48. Acquisition cost: The cost at which a product is acquired from a direct or indirect source; it includes all discounts except the cash discount. ‘om 192Reference Guide for Pharmacy Management and Pharmacoeconomics 49. Cost of dispensing: The sum of all direct expenses, indirect expenses and losses due to reductions. When the cost of dispensing is be related to a specific professional fee, this sum is divided by the estimated nu ber of prescriptions to be dispensed. Elasticity of demand: A measure of the extent to whi produet will h the sale of quantities of a hange in response to a change in price or other mel +handising variable. Si. "ect expenses: Operating costs that occur for a department only because it exists 52. Indirect expenses: All facilitating operating costs generated by the business for the benefit of its department; overhead expenses 53. Variable expenses: Operating costs which increase or decrease directly with sales volume change, however not always to the same degree Differential analysis: The process of estimating the consequences of alternative ac- tions that decision-makers take, Differential costs are the costs that increase when tak- ing a particular course of action. Differential revenue is the additional revenue that ac- crues by taking a particular course of action . Drug Utilization Review (DUR): Itis the type of study that is conducted by health plan sponsors to monitor the frequency and usage of prescription drugs. The review can Fange from assessing the number of prescriptions per member per month, to an evalua- tion of compliance with therapeutic guidelines. A review of paid claims is called “retro spective DUR,” a review conducted at the time of prescription dispensing is known as “concurrent DUR", and a review that is conducted prior to dispensing the prescription is known as “prospective DUR. 56. Earned discount: The difference between AWP and AAC is known by eamed discount. This discount is normally greater for pharmacies that buy in larger volume and have more efficient purchasing practices. 57. Exe Provider Arrangement (EPA): A managed healthcare system that limits the number of providers that may participate. It is also known as a “closed panel. Pharmacy Benefit Management (PBM): The company which contracts with the phar macy and manages the logistical functions of the third party program on behalf of the corporate purchaser of a prescription drug benefit program. 59. Prospective reimbursement: A form of reimbursement in which a pharmacy is paid in advance an amount estimated to cover prescriptions that will be dispensed to plan ben- eficiaries later. There are several payment methods that fall under the umbrella of PPS: DRGs (inpatient admissions); APCs (outpatient visits); RBRVS (professional services): d RUGs (skilled nursing home care). www.pharmacyexam. Krisman 193Reference G and PI ide for Pharmacy Management 60. Retrospective reimbursement: A form of reimbursement in which the pharmacy is paid after submitting a claim for a prescription dispensed to a plan beneficiary. Also called “fee-for-service. 61. Adjusted Average Per Capita Cost (AAPCC): It is normally used by the Healthcare Financing Administration as the calculation for funds required to care for Medicare recipients. The risk contract reimbursement is 95% of the AAPCC fee-for-service ex- penditures on a 5 year rolling average for a county. 62, Agency for Healtheare Policy and Research (AHCPR): It was created by congress in 1989 under Public Law 101-239 as a public health service agency to collect and share information to improve healthcare delivery 63. fated payment: A contractually agreed fee (monthly, bimonthly, or annual) paid by an HMO or CMP to either an IDN, hospital, physician, or group practice, in ex- change for healthcare services to enrolled members. 64, Case mix: A manner of describing the tendency of a group of covered lives to utilize services, in terms of the frequency and intensity of hospital admissions or services re- flecting different needs and uses of hospital resources. It can be measured based on patient’s diagnosis, severity of a patient's illness, the utilization of services, and the characteristics of a hospital. Case mix influences ALOS, cost, and scope of services provided by a hospital Health risk assessment (HRA): A health promotion or wellness program used to evaluate the health status of a patient or employee, which can either be performed on-site or of f- site from the work location, through an automated or written format of questions and answers. Programs may evaluate general health status or may be more targeted toward cardiovascular health, with related risks and recommendations for how to reduce risks. 66. Medicare Risk Contract: The Medicare Risk Contract program was initially autho- rized in 1982 to allow Health Maintenance Organizations (HMOs) and similar organi- zations to contract with Medicare. In return for a per-capita payment, the organization is at full risk for providing medically necessary Med es to enrolled beneficiaries, The risk contract program has gradually grown to include 12.5 percent of beneficiaries in mid 1997. Problems with the adjusted average per capita cost and the lack of choices other than HMOs, however, appears to have limited the growth of this program and helped convince Congress to enact changes. care serv 67. Medical Loss Ratio (MLR): The ratio between the cost to deliver medical care, versus how much revenue is made from premiums. Insurance companies often have a medical loss ratio of 96 percent or more. The tightly managed HMOs may have ‘medical loss ratios of 75 percent to 85 percent. It is a common way to find out the efficiency of a given HMO or health plan. www.pharmacyexam.com 194Reference Guide for Pharmacy Management and Pharm: 68, 69, 70. 713 TR. 74, www.pharmae; Krisman MLRs have been reduced during the 1990s, from low 90% to the 70% range, but in recent years, they may be swinging back up as profitability is challenged, Management Service Organization (MSO): An organization that provides practice administrative, and support service to individual physicians or group practices. Also known as a Medical Service Organization or a Shared Services Orga. nization (SSO), managemen Per Member per Month (PMPM): Applies to a revenue or cost for each enrolled member each month. National Committee for Quality Assurance (NCQA): The National Committee for Quality Assurance (NCQA) is an independent, non-profit organization dedicated to ieasuring the quality of America’s healthcare. The organization is governed by a Board of Directors that includes employers, consumer and labor represen health plans, quality experts, regulators, and representatives from organized medicine. tatives, Its mission is to improve the quality of healthcare delivered to people everywhere. To achieve this goal, NCQA’s efforts are organized around two activities, ac and performance measurement (report cards), which are complementary strategies for producing information to guide a patient's choice. editation P & T Committee: The main focus of the committee is to develop policy and educate healthcare professionals on various aspects of healthcare-related subjects. As far as development of policy concerns, most policies are related to evaluate and select drugs to be included in the formulary. The P & T committee also develops other policies pertaining to drug therapy to ensure safe and cost-effective drug therapy ro premium: In some Medicare marketplaces, there is a practice of not charging any added monthly premium (also known as zero premium) to (plan members) what is already paid for coverage of the Part B Medicare program, versus the practice of an HMO getting a monthly premium in addition to what is paid to the federal govern- ment by the patient Accelerated Death Benefit: A benefit that allows a terminally ill insured to receive part of the face amount of their life insurance policy in advance of their death, as cither in one lump sum or in installments, Psychometries: The science of measuring the characteristics of human behavior, personality, cognitive abilities, interests, or aptitudes. ‘am.com 195Reference Guide for Pharmacy Management and Pharmacoeconomics 15. 16. 71. 8. 79. 80. 81. 82. Validity: A test is said to be valid if it measures what it claims to measure. There is no one validity coefficient for a test. A test is always valid for some purpose, and there- fore is more valid in some circumstances than in others. Construct Validity: This refers to whether a test is measuring what it clai judged by accumulated evidence. A variety of statistical techniques can be used to see if the test behaves in ways predicted by the given construct. For example, a new test of computer programming skills would be expected to correlate highly with other valid tests of computer skills. Conversely, this new test would be expected to have little correlation with a different type of test (such as a test of social intelligence) s to Concurrent Validity: A test is said to have concurrent validity if it correlates highly with a “benchmark” test of the same variables. Content Validit ‘This refers to tests such as skills, ability or attainment tests where the domain of items is very defined. A test with good content validity represents and samples adequately from the curriculum or content domain being tested. This kind of validity involves logical comparisons and judgments by the test developers rather than a specific statistical technique. For example, a high school biology test has content validity if it tests knowledge taken from biology textbooks assigned to students and reinforced by teachers in their instructional program. C1 performance), us! iterion Validity: It is the degree to which a test predicts some criterion (measure of ally in the future. To ascertain this kind of validity, evaluators look at the correlation between the test and the criterion measure. For example, a college admission test has criterion validity mance (e.g., grades, degree completion). if it can predict some aspect of college perfor- Concurrent Ci n-Related Validity: This refers to evidence of criterion validity in which predictor and criterion information are obtained at approximately the same time Predictive Criterion-Related Validity: This refers to evidence of criterion validity in which criterion scores are observed at a later date (e.g. after job performance), Face Validit what it clai An instrument is said to be face s to measure. d if it appears to be measuring Predictive Validity: A test is said to have predictive validity if it will predict some variable. www.pharmacyexam.com Krisman, 196Reference Gi and Phat le for Pharmacy Management Krisman 84. Synthetic Validity: This refers to the practice of using validity generalization to “synthesize” the criteria for a new job through extrapolation from known predictive criteria in other jobs. 85. Validity Generalization: This refers to applying validity evidence obtained in one or more situations to other similar situations on the basis of simultaneous estimation, meta-analysis, or synthetic validation arguments 86. Validity Scales: This refers to any of a variety of scales designed to geration, faking, equivocation, or deception by test participa dicate exag. ts, 87. The extent to which we are measuring some attribute in a systematic and therefore repeatable way. For an instrument to be reliable, its results must be reproducible and stable under the different conditions in which it is likely to be used Test reliability is decreased by errors of measurement. Three commonly used types of reliability include: 1 Test-retest reliability: The degree to which a score on one instrument is equivalent to the score on the same or a parallel instrument 2. Internal consistency reliability: The degree to which items within an instrument correlate to each other 3. Inter-rater reliability: The degree to which the measuring instrument yields similar results at the same time with more than one assessor 88. Decision analysis: A technique used to aid decision-making under conditions of uncertainty by systematically representing and examinin; tion for a decision and the uncertainty around that information, The available choi plotted on a decision tree. At each branch, or decision mode, the probabilities of all of the relevant informa ar each outcome that can be predicted are estimated. The relative work or preferences of decision-makers for the various possible outcomes for a decision can also be estimated and incorporated in a decision analysis 89. Cost minimization analysis (CMA): It is used to define the most economical treat- ment among different alternatives with equal efficacy/effectiveness and safety profiles. 90. Cost effectiveness analysis (CEA): It compares treatment alternatives with different efficacy/effectiveness and safety profiles. While costs are calculated in monetary Value, outcomes are valued in clinical terms (e.g. drop in value of HbA Le, blood pressure, number of cases cured). Moreover, in the so-called lifetime CEA, outcomes are measured as years of life gained with the new treatment as compared with the standard of care treatme www.pharmacyexam.com 197Reference wuide for Pharmacy Management Krisman and Pharmacoeconomics o1. 92. 94, 98, Cost-utility analysis (CUA): In this type of analysis, the cost is measured in mon- etary value and outcomes in clinical terms incorporating patient preferences (e.g, quality of life measures). Often the utility measure used is a “quality adjusted life year” (QALY) gained. QALY incorporates both quantity and quality of life. The use of QALY as a measure of outcomes, allows a direct comparison among cost-utility ratios from different pharmacoeconomic analyses. The preferred treatment alternative is that with the lowest cost per QALY. Possible alternative measures are healthy year equiva- lents (HYE) or saved young life equivalents, The first measure is very difficult to compute, while the latter is not as broadly known and used as QALYs. Cost-benefit analysis (CBA): Both costs and benefits of a treat monetary values. Future costs and benefits are discounted to their current value. Although considered the best economic analysis, its application in pharmacoeconomics and healthcare in general is limited, due to the difficulties in assigning a monetary value to health outcomes and a patient’s life. nt are measured in Ambulatory Procedure Classifications (APCs): Enacted by the federal government in 2000, a prospective payment system for outpatient services, similar to DRGs, which reimburses a fixed amount for a bundled set of services. APC: A flat fee payment system implemented by the federal government to control the payment for outpatient services provided to Medicare recipients. Breakeven analysis (BEA): A technique to analyze the relationship among revenues, costs, and volume. It is also called Cost-Volume-Profit analysis (CVP). Breakeven point: The point where total revenues equal total costs. Future Value (FY): It is defined as what an amount invested today will be worth at a en time in the future using the compounded interest method, which accounts for the time value of money. Horizontal analysis: A method of analyzing financial statements which look at the percentage change in a line item from one year to the next. It can be calculated by using the following formula: (subsequent year - previous year) / previous year. ‘Trend analysis: A type of horizontal analysis that looks at changes in line items compared to a base year. It can be calculated by using the following formula: [(any subsequent year - base year)/base year] x 100. www.pharmacyexam.com 198,Reference Guide for Pharmacy Management and Pharmacoeconomics 100. 101. 102. 103. 104, 106. 109, 10, Vertical analysis: A method to analyze the financial statements which answer the al questions: What percentage of one line item is another line item? It is also known as common size analysis because it converts every line item into a percentage, thus allowing comparisons among the financial statements of different organizations. Sunk costs: Costs incurred in the past ‘Sinking fund: A fund into which monies are set aside each year to ensure that a bond be liquidated at maturity Pure Food and Drug Act of 1906: Congress passed this law in 1906 to protect people from unsanitary and poorly labeled food. Food, Drug and Cosmetic Act of 1938: This law suggests that no new drug can be marketed until proven safe by the FDA for public use Durham Humphrey Amendment of 1951: This law is also known as the “Prescription Drug Amendment.” It differentiates between prescription and OTC drugs. It also autho- rizes oral prescriptions and prescription refills. It suggests that each drug should be la- beled “Caution: Federal law prohibits dispensing without a prescription. Kefauver Harris Amendment of 1962: It is also known as the “Drug Efficacy Amend- ment”. This law indicates that new approved drugs must be safe as well as effective. It also establishes Good Manufacturing Practice requirements. Medical Device Amendment of 1976: This law was passed in 1976, ‘The classification of medical devices Safety and efficacy of medical devices Orphan Drug Act of 1983: This law was passed for orphan drugs (drugs for diseases that affect very few people). Congress passed this act to provide tax relief and other incentives for the manufacturers to develop and market orphan drugs. Drug Price Competition and Patent Term Restoration Act of 1984: This law is also known as the Waxman Hatch Amendment. This law was passed to make generic drugs adil pharmaceutical companies and encourages them to develop new drugs. available to the public. This law also provides more incentive to innovative Poison Prevention Act: This law was implemented to prevent the death of children from accidental poisoning. This act was passed in 1973. It indicates that all dispensed drugs are required to be in a child proof container, www.pharmacyexam.com Krisman 199Reference Guide for Pharn and Pharmacoeconomics -y Management Table-1 Name Causative organism Recommended dose Diptheria Corynebacterium diphtheria Adult dose, boost every 10 years. H.Influenza b H.influenza Most children have 3 to 4 doses 2 months to months. Hepatitis A HAV 3 doses at | month, 6 to 12 months old, and for patients age 18 years, while 2 doses every 6 months to 1 year apart for patients .e more than 18 years years to Hepatitis B HBV 3 doses at | to 2 months old for infants and adults. Influenza Influenza 1 dose every year Measles, Mumps Measles, Mumps 2 MMR vaccine at 12-15 months and Rubella of age, and Rubella and again at 4 10 6 years of age. Pertussis B Pertusis It should be given to children ages 6 weeks to 7 months, Poliomyelitis Polio virus It should be given at 2 months, 4 months, 12-18 months, and at 4 to 6 years. Pneumococcal S. pneumonia 1 dose Tetanus Clostridium tetani 3 to 4 doses plus booster every 10 years. Table-2 Drugs with a_prolonged half Chlorpropamide * Corgard : Azithromycin Pi * Bromocriptine iroxicam Clofazimine Amiodarone www.pharmacyexam.com 200Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics Table-3 IRAM IN PRODUCING DRUG Metronidazole Chlorpropamide Cefotetan Cefoperazone Moxalactam Cefamandole Tolbutamide Acetohexamide Glyburide Glipizide Disulfiram DRUGS THAT PRECIPITATE DISULFIRAM-LIKE REACTIONS WITH TABLE-3 Alcohol Benadryl Elixir Digoxin Elixir Lanoxic PLAT Cefamandole Cefoperazone Moxalactam Cefotetan Plicamycin Ketorolac Aspirin Ticlopidine Clopidroge! URINE DISCOLORATION PRODUCING DRUGS Phenazopyridine Senna Rifampin Phenolphthalein Levodopa * Sulfasalazine 7 201Reference Guide for Pharmacy Management Kris and Pharmacoeconomics nan NTS PACKAGE IN! ERT AT REQUIRE A PATI Isotretinoin Oral contraceptives Isoproterenol * — Ticllopidine Progesterone Estrogen Intrauterine devices DRUGS CONTRAINDICATED DURING PREGNANCY * Isotretinoin Tetracycline Chloramphenicol Sulfonamide Misoprostol Finasteride Methimazole Warfarine Metronidazole Valproic acid * Lithium carbonate Alcohol | S_& TI NORMAL BLOOD THERAPEUTIC CONCENTRATIONS | * Digoxin 0.7 to 1.4 ng/ml Primidone 04 to 12. meg/ml * — Phenytoin 10 to 20. meg/ml Vancomycin 05 to 15 mcg/ml Amikacin 10 meg/ml Lithium 06 to 1.2 mEq/L Carbamazepine10 to 20 g/ml Valproic acid 40 to 100 meg/ml Gentamicin meg/ml Haloperidol 05 to 20 ng/ml Tobramycin 2 meg/ml * — Fosphenytoin 10 to 20. meg/ml Theophylline 10 to 20 meg/ml * Streptomycin 5 meg/ml * itoxin 09 t0 25 ig/ml * — Quinidine 02 t0 06 Carbamazepine 04 to 12 * Phenobarbital 10 to 40 www.pharmacyexam.com 202Revex Naltrexon= Revia Digoxinfab=Digibind LeucovorinCa*?= Wellcovorin Mesna = Mesnex Vitamin K Protamine sulfate Deferoxamine = Desferal Dimercaptol Sodium thiosulfate Flumazenil=Romazicon Physostigmine: tilirium Acetyleysteine= Mucomyst Dexrazoxane=Zinecard Pralidoxime = Protopam cl Gluca Edetate disodium Edetate calcium disodium Atropine Hydroxocobalamin ¥ LeucovorinCa*~= Wellcovorin www.pharmai exam. Krisman, DRUGS Opioid Opioid Opioid Digoxin, Digitoxin Methotrexate, Trimethoprim, Cyclophosphamide, Ifosfamide Coumadin Heparin Iron Arsenic, Gold Cyanide Benzodiazepine Atropine, Anticholinergic Acetaminophen Doxorubicin Organophosphorus compound Insulin Digi is toxicity, hypercalcemia Lead Acetylcholine, Choline c agent Cyanide Pyrimethamine 203Reference Guide for Pharmacy Management Krisman and Pharmacoeconomics DRUGS THAT CAUSE PHOTOSENSITIVITY REACTION * Accutane * Cipro * Rheumatrex * — Micronase = * —_—DiaBeta . Sulfonamide * — Retin-A * Doxycycline * Tetracycline | * Bactrim * —— Griseofulvin * Thiazide diuretic Carbamazepine * Methotrexate * Tricyclic antidepressant Sulfonylureas * — Noroxin * Glucotrol ABBREVIATION: | aa of each + DAW dispense as written * NandV nausea and vomiting * gtt drop | + Fac before meals * am. morning * after meals * pm. evening * ad, right ear a hs at bed time * as left ear * od. right eye * au both ears oreachear * os left eye * qd daily + so both eyes or each eye * bid twice daily * both eyes * tid three times daily = * po. by mouth * qid four times daily ape per rectum * qod every other day * gon every 6 hours pt pint + pm as needed IAT CAUSE ENZYME INDUCTION DRUGS. * Rifampin ‘arbamazepine Phenobarbital Troglitazone * — Nicotine * Omeprazole Rifabutin DRUGS THAT CAUSE ENZYME INHIBITION * Ciprofloxacin * Clopidogrel * — Cimetidine * —— Ritonavir Erythromycin * — Fluvoxamine Ketoconazole Nelfinavir www.pharmacyexam.com 204Reference Guide for Pharmacy Management STOOL DISCOLOR PRODUC Dr Rifampin Phenolphthalein Phenazopyridine Antacid Kao-pectin Iron salt Warfarin DRUGS THAT N Caleimar Xalatan (opthalamic solution) Viroptic (opthalamic solution) Opthetic (opthalamic solution) Fluorocaine (opthalamic solution) Occusert Pilo Phospholine Iodine (opthalamic solution Erythromycin Ethyl Succinate Suspension Promethazine suppository Fosphenytoin (Injection) Bicillin-LA (Injection) Mose (Injection) Harvix-A (Injection) Neupogen (Injection) Thyrolar Mycostatin pastilles Fortovase capsules Norvir Capsules Calcitonin Salmon (Injection, nasal spray) Bacid (dietary supplement) Lactinex (dietary supplement) Sterile Bacitracin powder Diltiazem injection Pepcid injection Urokinase Sus-Phrine (injection) Domase-alpha Tetanus Toxoid Hepatitis-A MMR vaccine www.pharmacyexam.com Krisman G DRUG! Color Red orange Red Red White Black Black brown Black TORED IN REFRIGERATOR Wycillin (Injection) Bicillin ( Injection) Permapen (Injection) Intron-A (Injection) Epogen (Injection) Neupogen (Injection) Hyperstat (Injection) Sandostatin (Injection) Novolin (Injection) Humulin (Injection) Regranex ( Cream ) 205Refer and P e Guide for Pharmacy Management Krisman macoeconomics COMMONLY USED UN! R PHARMACEUTICAL CALCULATION: * 1 kilogram 1000 grams * 1 gram 1000 milligrams ' I milligram 1000 micrograms * I microgram = 0,001 milligrams * 1 microgram = 10% grams 1 nanogram 10° grams 1 grain 65 milligrams I liter = — 1000¢e 1 ounce (oz) = 30ce 16 ounce (oz) 480 ce = Ipint 1 pint = 480cc 1 quart = 960.ee ints I gallon 3840 ce 8 pints = 4 quarts Lkg 2.2 Ibs Lib 454 grams 1 teaspoonful See 1 tablespoonfl 15 cc 1 teacupful 120 ce Density weight/volume x % viv strength) / 50% viv proof spirit /2 (gal x proof spirit) / 100 Proof gal PV nT Pv WMxRxT * Equivalent wt molecular weight / number of valence * mEq equivalent weight in mg / 1000 * — mOsmoV (weight of substance [g/L] x no of species x 1000) / mol wt pKa + log (salt/acid) ’ (age in years /age + 12) x adult dose ' (weight in Ibs / 150) x adult dose * —— Child’s dose (body surface area of child / 173 mm?) x adult dose * — Fried’s rule (age in months / 150) x adult dose * FP of blood = 0520 * Each gm of hydrous dextrose provides 3.4 calories / kcal * Bach gm of anhydrous dextrose provides 4 calories / kcal Each gm of fat provides 9 calories / kcal n of protein/aminoacid provides 4 calories / kcal triglyceride (met)= __8.3 calories / kcal 4.3 calories / keal 5.6 calories / keal 1.1 calories / keal 2.0 calories / kcal Each gm of medium cl Each gm of glycerol provides Each ce of alcohol provides 1 ce of 10% fat emulsion provides 1 ce of 20% fat emulsion provides www.pharmacyexam.com 206PREPARATION www.pharmacyexam.com A Resourceful Practice Guide For nacy This FPGEE ® review guide covers the following topics: wv Principles of Pharmacoeconomics U.S. Healthcare Delivery System Managed Care Pharmacy Practice Communication Skills in Pharmacy Practice Social & Behavioral Sciences Effective Pharmacy Management Pharmacy Administration & Jurisprudence Also Recommended: Reference Guide For The Foreign Pharmacy Licensing Exam - Questions & Answers Reference Guide For The Foreign Pharmacy Licensing Exam - Theory Reference Guide For The Pharmacy Licensing Exam - Theory ISBN 0-9746544-1-8 9.0000 97 ale oa 1a RXEXAM is a registered trademark of Pharmacy Exam of Krishna Publications, Inc. Any unauthorized use of this trademark will be considered the violation of law. © 2005 Pharmacy Exam. All Rights Reserved. www.pharmacyexam.com