Health Fund Managed Care – Will it be a short-term positive or a long-term negative for Pharmacy

There seems little doubt that the Australian government is setting out to introduce a US style of healthcare management using health funds to “front” for some of their objectives.
Despite the fact that the US has the worst health system in the world (as well as the most expensive), government seems to think that by destroying some of the safety net aspects of the existing Australian system, it will be able to better budget for the future, which comprises ever expanding and chronically ill seniors.

The first stage of the new process commenced with the sale of the highly profitable asset called Medibank.
With that asset sale came instant change in the form of an increase in premium and a reduction in benefits.
I would describe the benefit reductions as being tied to a philosophical government list, which I would further describe as being a “cultural wish list”.

For example, two of the 175 benefits removed from fund schedules are items pertaining to hospital culture.
For years, state governments (public hospital owners) have been trying to alter medical culture to prevent patient falls within a hospital setting, with the other being a rebound patient within 30 days.

Falls primarily occur in hospitals due to the drugs prescribed, having patients in beds that do not have safety side-rails, or who are inadequately supervised when performing prescribed daily exercise.
Despite precautions, hospitals experience a steady stream of falls, most of which are attributed to prescribers ordering one or more unsuitable drugs or inadequate nursing numbers to properly supervise patients.
No matter what the underlying cause of a fall, Medibank will not reimburse the hospital for the ongoing treatment of that fall.
Those costs will eventually find their way back to the patient in some form of out of pocket charge.

The same for patient rebounds.
It is known that patients discharged with inadequate information relating to their drugs or their condition, often find themselves rebounding back to hospital.
Part of the cause is the pharmacy department not being notified of a patient discharge, or being given inadequate notice to prepare a drug list for the patient, with appropriate verbal and printed education.
Sometimes there is no transition system in place from hospital back to the community, and this is an area that can be developed through the use of clinical pharmacists attached to community pharmacies.
Patient rebound costs are usually higher because those patients tend to stay longer and require more intensive treatment.
This cost has now disappeared from the Medibank schedule and will eventually find its way back to the patient in some other format.

Other health funds are looking at a form of managed care that involves ownership or investment control of a health provider practice, and to influence a lower cost for the services provided for fund members.
The lower cost is offset through fund members being directed to that managed care (providing a scale of economy).
A range of managed care services in different health systems could represent substantial reductions in costs for patients who are health fund members.

Private hospitals have had that system in place with most medical funds for some time now.
Recently BUPA purchased 400 dental practices which reflects their early introduction to managed care.
HBF in Western Australia has introduced a “twist” in managed care where it has begun to franchise its fund reimbursement for prescriptions and pharmacy services through a 15 strong group called Friendlies Pharmacies (not owned by the Friendly Societies).
While HBF is not part of the visible brand for the group, it is certainly a component of their management and marketing.
Having a cash flow generated by a health fund through their customer direction is a relatively new method of increasing market share in pharmacy.
The cost to pharmacy, measured as a discount on services provided (including prescriptions) would need to be carefully balanced in the current economic climate.

There is no doubt that health funds will become part of a pharmacy market plan, particularly one that includes clinical services provided on a fee for service basis.
Government support for the type of services pharmacy would like to provide may take a long time before government funding is considered.
And with the further provision that services be “evidence based” before funding is approved means that evidence has to come from recognised overseas models, or an Australian model privately paid for by patients.

So an alliance with a health fund could initially provide a mutual benefit.
This is one of the reasons that i2P encourages the formal registration of patients and a build of services that represent value to the patient which can also double as a conduit for a health fund looking to increase membership.
Pharmacists with registered patients will be able to build value for their patients and that will distinguish you from your competition.

But long-term, problems could emerge.
The health fund may want to become more involved in a pharmacy’s marketing system and management.
This could create pressure on the pharmacy “bottom line” so you could end up with a variant of the current PBS system i.e. profitless prosperity.

The other problem is that if you are not part of the “inner sanctum” of a funds’ benefits schedule, you could become isolated.
What happens if you create an arrangement with one fund?
Will it try to prevent alliances with other funds?
What happens if a single fund promotes only your pharmacy but down the track starts to open its doors for competitor pharmacies?
So this new direction opens quite a few doors and it may eventually lead to funds owning pharmacies.
Remember, this is being explored in 7CPA “ownership of pharmacy” rules.

The current investigation into location rules I believe has already been decided upon and the final report written.
The consultants involved will simply earn a nice fee for rubber-stamping the exercise.
Location rules will disappear at the end of 6CPA in preparation for allowing ownership to the range of predators standing on the sidelines (Woolworths, Coles, Pharmacy Groups, Pharmacy wholesalers, overseas pharmacy chains and now Health Funds).

As Health Funds increase their asset development across the board you will probably see the formation of health precincts eventually emerge, where all Health Fund assets can aggregate together.
The private hospital, the pharmacy, the GP and specialist clinics, Medical imaging and Pathology Laboratories will begin to appear as being like a regional shopping centre.
This saves the “shoe leather” of a patient with all the health providers being captured and married to a low rebate from the fund which in turn generates a premium to patients for “what the market will bear”.
In turn, all the Fund’s assets will increase as they begin to control large market shares from all providers.

The Australian Government is being very cynical by going down the managed care pathway, simply to balance a national budget brought on by an ageing population.

However, pharmacists need to be aware that while survival is at the forefront for the moment, all the old problems surrounding ownership will not simply disappear.
Those professions that have allowed open ownership of their practice entities will now begin to regret that decision as managed care organisations begin to dominate the market.

Community pharmacies will become increasingly vulnerable so they must develop their market to combat managed care.
If you understand the problem you can confidently confront it
Marketing systems to benefit patients will need to be explored while some of the old systems need to be resurrected e.g. compounded prescriptions, along with extensive private labels.
Most needed will be clinical services that can be marketed to private patients, and later subsidised by government or health funds.

Don’t fall into the carefully planned traps that are emerging, and that our leadership organisations are yet to realise, and react too late along the development timeline.
At least for the short-term there seems to be a future in exploring a health fund alliance.

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