Answers can be had at looking at the success of others, in this case the Minnesota Counties Insurance Trust. Early in 2007, MCIT decided to outsource PBM for workers' compensation to a commercial service provider.
MCIT had previous in-house knowledge and experience with claims administration, but had not previously used a pharmacy benefits management service. The organization also had some experience with RFPs from its consulting practice, helping member counties select health insurance vendors. But it had never done an RFP for pharmacy benefits management, so it was somewhat of an exploration.
The RFP process allows you to walk through all aspects of the business and the technical interface between the pharmacy, PBM and client's claims adjuster functions. Both the client and provider benefit from increased knowledge of the other, which is enabled by the RFP process.
The more a PBM knows about the prospective client's business and needs, the more it can propose and develop a solution that best fits their needs. Client and PBM walk through the whole process, from the proposal to a detailed evaluation of pharmacy bills, through program implementation and the claims interface, to ongoing management of the process. There are then fewer hurdles starting off the relationship. Fewer surprises lead to a more productive long-term relationship for both customer and provider.
MCIT STEPS SYSTEMATICALLY THROUGH THE RFP PROCESS
MCIT decided from the very beginning that it would engage representation from all affected departments within the organization, including risk management/claims adjusters, senior administrative management, information technology, finance and legal--with a total of 8 people on the team.
The team made a list of vendors and defined its objectives and requirements using internal knowledge and experience, as well as with input from some of the vendors. MCIT really felt the need for a team effort, so everybody could understand what everybody else needed.
IT, for example, was asked: What specific issues are important to you, because you are going to help define requirements. We want you to be part of the solution, rather than part of the problem.
Later in the vendor evaluation process, when MCIT had to make some hard choices between vendors or give up a little in one area (IT or finance) to get more in another (claims or customer service), the team would have a basis for making those decisions.
After meeting once a week for four weeks, the team went through three drafts of an RFP and felt ready to approach vendors. Meanwhile, a vendor screening and evaluation criteria were also developed, including objective and subjective measures.
The team sent out the RFP electronically and requested a formatted response, to be able to compare apples-to-apples. Responses were asked for in 3 weeks. Some vendors inserted answers into the electronic form, some shoehorned information they submitted to other RFPs that didn't necessarily hit the target, and others made up their own format. It was a test to see who was going to respond to appropriately. If getting answers from them in this "dating phase" was difficult, it helped determine who to get engaged to.
During this time, vendors contacted MCIT to ask questions. The team provided written answers to everyone who was bidding, making sure the playing field was level for all vendors.
Six vendors formally responded. Each team member reviewed all six vendor proposals. Four members scrubbed the entire RFP and others were more focused on questions that dealt with their specific disciplines (e.g., claims, IT, finance). Team members looked at the screening criteria and dug out related information from the proposals to discuss how each vendor faired on each criterion. They created a scoring spreadsheet with criteria on the left and the six vendors on top, and then wrote information in each cell with references back to pages within the vendor proposals.
The team evaluated individual vendors against the scorecard criteria. When the team regrouped, members talked about the vendors and the criteria for each vendor. They thought about scoring vendors numerically on each criteria and totaling up the scores as a group but decided against that because different members had expertise in different areas, and numerical scores at that level might have been misleading.
Based on a subsequent discussion of the criteria for each vendor, they were able to eliminate two of the six vendors, resulting in four to interview. In the process, the team identified vendor-specific issues and questions that could be asked when they came in for a face to face.
Vendors were then scheduled for presentations, demonstrations and discussions with the multidisciplinary team. The majority of time spent in those presentations involved asking specific questions about vendor proposals that had been developed from analysis and internal discussions. Team members also paid close attention to how vendors answered questions and how the team interacted with them, which contributed to the subjective assessment.
In the end it was very important to have an apples-to-apples comparison. For instance, after the interview with the first vendor, the second vendor would say something that didn't come up with the first vendor. The team would address that issue with the third and fourth vendors, and would go back to the first vendor to get the answer from it. There was a great deal of back and forth to make sure all the material was available to compare the vendors on the criteria.
After the presentations, the multidisciplinary team got back together and reviewed the vendors' answers to our questions, identified outstanding issues, and discussed strengths and weaknesses.
That process allowed the elimination of two more vendors. The two final vendors, it was felt, could both adequately address MCIT's requirements.
THE WHATS AND WHYS OF THE PBM VENDOR SELECTION CRITERIA
The MCIT RFP evaluation process utilized both objective and subjective criteria.
On the objective side, some criteria were fundamental, such as whether a PBM owns its own network or resells someone else's network. Vendors that resell someone else's network potentially have higher costs because they have to pay administrative network rental fees or up-charges to the network owner. PBMs that have their own network have negotiated direct contracts with pharmacy providers.
There could also be a higher level of transparency with a PBM that owns its own network and is willing to share information about pharmacy contracts, prices and payments to pharmacies. Also, if a client and a PBM make changes to the formulary, it could be immediately communicated to and actionable by the pharmacies.
Structured programs for drug utilization review are also very fundamental. Negotiated pricing for pharmaceuticals and fees for administration are important, but a competent DUR program can have a greater impact in managing costs. It can also have a positive health impact on the injured worker, including a medically oriented review of drug usage patterns, abuse detection/prevention, drug-to-drug interactions, generic substitution rates, therapeutic duplications, duplicate prescriptions, formulary compliance, cost overrides savings calculation and overall program effectiveness.
There are also a number of performance benchmarks that are useful for comparison, including:
- Network Penetration: percentage of client prescriptions that are discounted: i.e., in network
- Percentage of first fills captured in network
- Percentage of second fills captured in network
- Percentage of prescriptions filled last year that were generic
Other programs, administrative functions or information infrastructure that were considered in the MCIT RFP evaluation process included:
- Network management and electronic transmissions: online information system access to pharmacies for eligibility verification, and to claims adjusters for electronic adjudication
- Programs to communicate with injured workers, including: first fill, distribution/replacement of cards, pharmacy cards, call-ahead programs and mail-order programs
- Formulary determination and management and the willingness to customize a formulary at any level, including employer, claimant and physician levels
- Customer service/helpdesk support with multilingual capabilities, available seven days per week to assist case managers, adjusters and pharmacists
- Outcomes management reports: standard and customized reports to determine outcomes, trends, establish customer goals and improve outcomes
- Percentage of pharmacy bills reviewed
With savings, the MCIT team wasn't sure what the answer was going to be, as it had no benchmarks having never done this before. Answers to savings were all over the board. One vendor would say 20 percent, for instance, while another said to refer to the section of their RFP on what the service would cost.
Vendor trust and transparency were very important. The team wanted a vendor that would help us understand how it priced pharmaceuticals and PBM administrative services, what the best pricing option was, and how both sides could work together to reduce costs and save money. The team looked at things like: discounting of drug prices, maximum allowable cost, retail agreements, average charge per prescription, and average wholesale price/discounts for generics and brand name drugs.
Like the performance benchmarks, the team wanted to look at historical costs, though they might vary by region and by industry or specialization.
Pricing for administrative services and fees can be done in a number of ways, including cost plus, percent or multiple of average wholesale price, and percent of savings. This fee structure may work better for one organization than for another. The key is to find a vendor that will work to match the pricing structure that fits a client's needs. MCIT opted for a structure that created a win-win with the vendor, where both sides have incentives to reduce overall costs and increase administrative efficiency.
There are legal and administrative issues that can be important as well, including: guaranteed payment on first fill, responsibility for nonauthorized prescriptions, and how vendors deal with pharmacies who have sold prescriptions to rebillers and collection agencies.
Subjective criteria included an understanding of the vendor, their history and future direction. The team didn't want a company that was so small that it might get gobbled up or go out of business. It didn't want a company that was so new that MCIT was its guinea pig. And the team didn't want a company that was so big that it would get lost in the masses.
Although MCIT used objective criteria to identify the final two vendors, the ultimate decision was a bit more subjective, based more on the way MCIT likes to do business. It came down to a very large company that had a good track record, but the people making the presentation were not the ones with whom we would work on a daily basis.
The winner (ScripNet, co-author of the article) was smaller but sent the actual people that would handle the account. MCIT felt a smaller company would be more flexible and accommodating. Sitting across the table from the people they were going to be working with made the RFP team members feel like they were getting a partner who would work with them to succeed on a day-to-day basis. The history of MCIT, whether by chance or by choice, is that it has an affinity for establishing long-term relationships; partnerships where, in the end, all parties benefit.
KEY LEARNINGS & CONSIDERATIONS FOR THE RFP PROCESS
Executive involvement is one of the most important factors leading to a successful RFP process. If a senior person applies themselves to the process, other participants see how important it is to the organization and are more engaged and responsive.
Multidisciplinary engagement is next most important. Gain participation from all departments that are dependent upon or have to provide information and/or will work with the vendor and vendor processes.
At the very least, that would include a senior manager or executive in risk management, claims adjustment and/or workers' compensation; someone with experience in the field who has dealt with these kinds of medical issues (nurse or pharmacist); someone from IT who will be involved in building electronic bridges; someone from finance/accounts payable; and someone from legal.
Having a multidisciplinary team creates a sense of ownership. The team understands that they are going to have to work with the ultimate vendor, so they have a vested interest in selecting the right one.
Spend the time to precisely define objectives, needs and priorities. Be comprehensive, but concise. Narrow the criteria to the most important and take out redundancy.
In the end, it's all in the vendor relationship. Use the process to not only select a vendor, but to start off the relationship on the right foot. It will help to work more effectively with the selected vendor in a long-term partnership.
ROBYN SYKES is executive director/CEO of the Minnesota Counties Insurance Trust, a joint risk-sharing entity that provides coverage and services to 81 of Minnesota's 87 counties and approximately 400 other public entities for workers' comp and property/casualty.
GARY DALY is vice president of sales with ScripNet, a Las Vegas-based workers' comp PBM.
August 1, 2008
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