See Through Benefits

Posted on May 1, 2011 :: Industries
Sean P. Johnson
Posted by , Insight on Business Staff Writer

The question vexes benefit managers everywhere: How to manage health care costs when the costs are often unclear or uncertain?

In a world of negotiated discounts, reasonable and customary charges, preferred provider discounts and rebates and write-offs, there are a lot of shades of gray when it comes to knowing what something actually costs.

Navitus Health Solutions was created with a business model aimed at solving the riddle – at least in terms of pharmacy benefits – they will show you.

Since its founding in 2003, Madison-based Navitus has followed what it describes as a “fully transparent” model for providing pharmacy benefits to companies and government agencies. The model has found traction, as the company now covers more than 1 million people and grew by nearly 25 percent in 2010.

“It’s a unique model in health care. You get the same deal whether you have 500 people or 50,000,” says Byron Mickle, senior vice president for sales, marketing and analytics with Navitus. “Our clients have a much better understanding of what they pay for.”

It’s catching on, as the company now serves clients in more than 10 states, including several large manufacturers in Northeast Wisconsin.

In the more traditional approach to pharmacy benefits, the management company will usually charge clients what is called a spread, which is a markup between what customers pay and the actual cost at the pharmacy.

In this model, discounts and incentives negotiated with the pharmacy can be retained by the benefit manager rather than passed through to customers. Essentially, the benefit manager makes its profit based on the spread.

In the Navitus model, the company is charged a set administrative fee and nothing else. Any discounts or incentives negotiated are passed straight through to the client in the form of lower drug costs. It negotiates the best price and that’s what the client pays. Costs can be audited down to the individual patient.

Oshkosh Corp. has partnered with Navitus for its prescription benefits for more than seven years and has been able to reduce overall drug costs during that time, says Mike Chilen, senior director of corporate benefits with Oshkosh Corp.

For Oshkosh, it’s not only that Navitus negotiates a good price, but the transparency on cost provides them with better information when auditing and tracking usage.

“Navitus continues to look at ways to save our organization money,” Chilen says. “They can demonstrate the savings of these programs to the overall prescription drug spending, as well as the member savings due to these programs.”

It hasn’t always been an easy sell, though.Navitus was created in 2003 by Madison-based Dean Health Plan and the former owners of Touchpoint Health Plan (ThedaCare and Bellin Health, both based in Northeast Wisconsin). Touchpoint was sold to UnitedHealth Care in 2004, and in 2007, Touchpoint’s former owners sold their half of the company to Dean Health Plan.

With the ownership reconstituted, Navitus set itself to expanding its business model across the marketplace, including Northeast Wisconsin. In addition to growing its client base in the area, the company has also grown its Appleton operations center. What started as 30 employees in 2004 is now 125, which includes the company’s call center and compliance staff along with a contingent of the company’s clinical and information technology.

“We really started to take off in 2006,” says Debbie Ludka, senior vice president for customer relations and chief compliance officer. “We are not your typical PBM in many ways.”
In addition to the pricing model, Ludka supervises an operations center that eschews phone menus and seeks to resolve problems on the first call.

Navitus is not the only benefits manager that has the transparency model in its arsenal. Menasha’s Network Health Plan also uses the model, though at this point its use has primarily been confined to its work with Medicare clients, where the use is mandated by law, says Chuck Rynearson, Network’s pharmacy benefits manager.

Network can use either model when developing benefit plans for commercial clients, but there has not been the demand for the transparency model.

“For me, it comes down to what is the best bottom line I can bring to the market,” Rynearson says. “When I can bid both ways, the spread model has come out best.”

Rynearson equates it to buying a car. Will the client pay $23,000 for a car where the client will know where every part came from, how much it was and whether it was discounted? They may buy the same car for $20,000 even though that information is not available.

But Navitus President Terry Seligman says they routinely save companies money over the long-term, typically 15 percent to 30 percent over a three-year period.

Transparency can mean different things to different companies, Seligman says. “You want to know that your pharmacy benefit manager isn’t incented by drug rebates or other drug monies passed around behind the scenes and under the table. And if access to your data is important to you – knowing exactly what you spend and being able to really work together with your PBM to drive your lowest costs – we’re the right PBM for you.”

The real challenge to growing the company, though, has been the cultural change the company has incorporated into its business model. Most benefits managers still use the traditional spread model, and convincing companies to change is often the hardest part.

The best sell, Mickle says, should be the results the company can show. More than half of the clients Navitus works with are in the public sector, according to Seligman. These include prescription benefits for state governments such as Wisconsin and Minnesota. In addition to Oshkosh Corp., its private sector portfolio features such firms as Sargento Foods, Sartori Foods and Appleton.

The Navitus business model saved the Wisconsin Department of Employee Trust Funds – which provides health benefits for 240,000 people – $157 million from 2004 through 2006, according to a study by Deloitte Consulting.

“When we can model it for them, we can show them savings,” Mickle says.