AH051 - Why Drug Prices & Modern Tech Matter in Hospice Care, Too, with Nick Opalich
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Transcript
Lightly edited for clarity.
[00:27] Justin Venneri: Hello and thank you for joining us for this episode of the Astonishing Healthcare podcast. This is Justin Venneri, your host and Director of Communications at Capital Rx And today we welcome Nick Opalich to the show. He's the founder and CEO of HospiceChoice Rx, and we'll be talking about a unique, very important segment of the US medical economy: end of life care. Nick, thanks for joining us.
[00:48] Nick Opalich: It is great to be here. Justin, thank you for having me.
[00:52] Justin Venneri: So, tell me a bit about your background and your company, HospiceChoice Rx. How did you come to found it? What do you guys do?
[00:58] Nick Opalich: Well, primarily Justin my background in the first part of my life has been spent on the pharmacy side of business. So I was involved in dispensing medications to people with high cost disease states and early on found out the entire aspect of the hospice industry and having a few family members have to go through hospice care back in the late 90s, early 2000s, and the hospice industry today and the caregiving side of it is much different than it was. Along the way, I consulted after I sold my business and spent the early part of the 2000s from about 2002 to 2012 consulting with the PBM industry.
So mostly commercial PBMs and a couple PBMs that did have a hospice division.
[01:53] Justin Venneri: Okay.
[01:54] Nick Opalich: So that's basically where it all began.
[01:57] Justin Venneri: And when did you found the company?
[01:59] Nick Opalich: HospiceChoice came about in 2020. Early 2021. So actually what we'll talk about further is the entire concept of our hospice offering really was developed around technology first and then focus on the services second.
[02:18] Justin Venneri: Okay, well it's been a while since I've done any work on the home care or hospice space. I usually try to do some digging before episodes, but we're kind of going semi unscripted here, which is fun. I used to write about Amedisys, Kindred, VITAS, and HCR in a prior life. What are the macro trends like? Is the aging population a big driver or piece of the puzzle still? Are there other things going on?
[02:40] Nick Opalich: When CMS actually announced hospice as a benefit early on as a traditional benefit under Medicare Part A, it's been growing consistently year over year and of course we had a large influx of the baby boomers which is going to smooth out here sometime before 2030.
But the trends today are very dynamic. And to me, it's built around how home care has taken such a foothold in our society. And hospice is more accepted today than it ever has been before. And we're seeing slight upticks in growth year over year. But remember, we're also having a number of people leave this life and exiting hospice. So, you got coming in and going out.
[03:40] Justin Venneri: So overall, how big is the hospice market?
[03:46] Nick Opalich: Across the country, we're looking at -- and when I speak, I'm going to be talking in 2022 terms, because all of your Medicare reporting and CMS statistics are roughly about a year behind.
So in 2022, roughly speaking, there was about 1.73 million Medicare hospice beneficiaries and, as I had mentioned earlier, up slightly over 2020-2021. And in that same period, as I had mentioned earlier, we had about 2.6 million decedents in 2020. And I will be using 2022 as a reference year here on out.
[04:33] Justin Venneri: Makes sense in terms of number of providers, or -- is it fair to think of it like in the billions of dollars in terms of reimbursement? Can you give us a sense of the size of the market from a financial and a provider perspective? And then what portion of that, because of your background and your company name, what portion of that is pharmacy spend or drug related?
[04:54] Nick Opalich: Sure. The spend roughly came in around $24 billion in 2022. And that is for all of the care that had been provided. So that's your inpatient care, outpatient care, nursing, nursing visits, payroll, etc. And the size of the drug spend roughly in there comes out to somewhere, give or take, about $3.5 billion. And of course, behind payroll paying for your nurses and your employees, your pharmacy spend inside the benefit tends to be, in most hospices across the country, a big driver.
And the spend breaks out on a census basis. So you have 1.73 million people using it. And of course their daily use is dependent on lengths of stay and things of that nature.
But it's safe to say the cost of the drug across your total patient per day care is running about $12.50. And if in some cases, when you have a very large hospice, that would be a very high number. So for someone like a VITAS, which is the largest hospice in the country, that would be considered very high.
It is high for most hospices that what I would say fall into the highest quartile. And so what all hospices try to do is they try to get that $12.50 down. The lower you go down in that span - $10.50, $9.50, $8.50, $7.50 - is where the hospices want to be.
[06:44] Justin Venneri: Interesting. Okay, and then you mentioned like length of stay and is that changing over time given the level of acuity you see, or like post Covid. Obviously a lot of people with lots of comorbidities unfortunately passed away during the pandemic and immediately thereafter. Did that impact the market or length of stay?
[07:03] Nick Opalich: It did. And for the most part, for reporting purposes, the COVID portion of it has been taken out. But when you take the COVID portion out of it, it remains pretty consistent. And it depends on where you're at.
So here in America, we do have an average of about 92 days of in care. And then depending on location, it could be higher than that in a private setting or home, Could be higher in a nursing facility, or even higher in an assisted living facility. And all of those locations are qualified caregiving locations for people in hospice.
[07:47] Justin Venneri: All right, and what's the role of pharmacy inside the hospice benefit?
[07:52] Nick Opalich: Well, now, that's an excellent question. Similar to the commercial PBM industry, what you have to be able to deliver a hospice is a high-quality pharmacy network.
There's a lot of care that is given importantly in what we call stat care. You can look at it this way. A patient can go into hospice at any time of the day anywhere in the United States. And that hospice has to have a partner that can help them identify a pharmacy that can give them 24/7.
So when we look at the role that a pharmacy plays – and I would like to share one more quality on that, and that is, this is where we see the independent pharmacies play a much bigger role. We see the higher quality coming from local independents and across the country in the high-volume hospice states like California, Texas, Ohio, Florida, you'll find very well-defined pharmacy networks.
And the PBM in this particular instance offers up a handful of pharmacies. And we'll also see if the hospices will say, I like XYZ Pharmacy. So if XYZ Pharmacy isn't in our network, we contract them into our network. But getting the drug to the hospice patient, wherever they may be, is very important, especially on day one.
[09:30] Justin Venneri: Got it. The pressure on independent pharmacies, is that impacting the networks as you see them?
[09:35] Nick Opalich: Well, yes. This is where again, Justin, I'd like to say strong similarities into what a commercial PBM would be doing for a self-employed or a self-funded plan.
You know, you look at it this way: the hospice becomes the group; the hospice becomes the plan. The benefit becomes what is authorized to be paid for by Medicare.
But what we find in the hospice pharmacy network side of things is a traditional pharmacy contract where you might see $1, $1.50, $2 dispense fee, AWP-19 on brand or AWP-40/50 in generic, is going to be very tough, extremely hard, for a pharmacy to be able to deliver the quality care because there's much more that goes into it. There's more work involved.
And one of the things that I've embraced is twofold. Number one, I do believe wholeheartedly AWP, Average Wholesale Price, is not a good benchmark to price drugs in the PBM world.
I like the concept of NADAC, but NADAC as a form of reimbursement is very strange to the local pharmacies. And sometimes when someone, like a pharmacy, doesn't understand how that methodology works, they become afraid of it. So what we do for the pharmacy and we all believe -- I believe, as the CEO of HospiceChoice -- that pharmacies should have a higher dispense fee. They're doing more work.
So a buck and a half, two bucks, three bucks, four bucks is not going to work. So what we will do in certain instances, we don't force NADAC and we don't un-enforce, if it's the way to say it, AWP. Because if the hospice loves a pharmacy and they don't want any disruption, then we're just going to simply say, sure, we'll do AWP, but let us show you what we can do with NADAC.
A concession can be, here where we could actually price it off a WAC, and then sometimes we really find out the comfort place for dispense fee falls somewhere right around in WAC+8, NADAC+8, maybe NADAC+9. But it's all in the dispense fee. And that includes your drug, your delivery and all of that kind of stuff.
So still a good way to help the hospice get their drug inside the cost of per patient day down.
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[12:34] Justin Venneri: So that kind of explains for me how hospice drugs get paid for, or how the pharmacy gets paid. And I definitely hear you on the dispense fee. But forgive me for this question if it's obvious or silly. Is it mostly government programs that you're working with? Is it because of the population?
[12:51] Nick Opalich: The way it works is this. So, the CMS guidelines or the hospice benefit under Medicare Part A and what is not part of the benefit, Medicare Part D, is paid for. CMS enters into a per diem with the hospice provider.
[13:14] Justin Venneri: Okay.
[13:14] Nick Opalich: So that, since you had mentioned Amedisys and Kindred and Vitas, we always look at those as providers. Right? They're the payer of the bill. They're the ones that are collecting the per diem.
So what we'll do with a hospice is there's two components to pricing. Once we all agree on clinical services, or if it's enhanced clinical services, where we will be taking on the role of. Of the clinical day to day. Where we are now more of a consultant, you know, we'll add that into our fees. And then sometimes you just have, where the hospice will say, you know, we're doing that. We have our own medical directors, clinicians, etc., and we're going to take that.
So we will provide a network. We will either adopt the hospice's formulary, we will consult with on that formulary, but once we have a list of approved drugs, we will then get started and go live with a client. We bill the drug to the provider twice a month, and we give them a very unified, high quality, auditable invoice, in of itself, Justin, is almost an audited statement to begin with.
And here is where the provider can easily audit. They can easily look at the drug, easily look at the line item. And if they question anything, it's not like you have to go through this big audit at the end of the year or something. We're providing that right up front.
And then once a month, at the end of the month, we collect a certified Medicare report from the hospice which tells us the total census. And then we take, for an example, let's just use 100 patients that used hospice services at that particular provider for 30 days is 3,000 days times our fee. And in that fee, we're also providing them all of the technology and tools to make their medication ordering, any prescribing, much easier. And so they get two bills and then auditable right back to the pharmacy supporting them.
[15:41] Justin Venneri: Got it. I didn't realize how big of a component of the overall spend pharmacy was. And then I would guess that the drugs unrelated to the illness or any others, or that's under part D probably outside of Part A?
[15:53] Nick Opalich: Correct.
[15:54] Justin Venneri: So you've mentioned technology a couple times, and you’ve mentioned AI also. The technology element, I'm curious, e-prescribing, integrations with EMRs, reporting. Talk to me a little bit about how technology is helping with the process of caring for hospice patients and making sure they get the right medication at the right time.
[16:11] Nick Opalich: Well, if we just back up a quick second and just talk about, you know, there's about 6,000 or slightly under 6,000 hospice providers in all 50 states. And the size of those hospice providers can range anywhere between 5 to 5,000, up to 20,000-22,000.
[16:33] Justin Venneri: And is that beds?
[16:35] Nick Opalich: That's patients.
[16:36] Justin Venneri: Oh, that’s patients at a given point in time.
[16:38] Nick Opalich: Yeah, that's a patient in a patient day. And so when we started this company, to go back to your direct question, the one thing that we did was unusual, Justin, and that is we spent approximately the first 15 months of our operations developing the technology.
And what that looked like, just to give you an example, what I call in football parlance, when, if you played football in high school, we used to have, before football started, practices twice a day. When we got started, we had these technology and service “two a days.” And we would meet twice a day for three hours in the morning, three hours in the afternoon. We did that for 15 months. We had a nurse clinician, a pharmacy clinician, along with our technology engineers. And we went through the entire workflow process, studying all of the hospices, how do they order, what's different, so that we can put our e-prescribe technology together.
And once that was done, it was relatively quick to ramp up the service side of this. Who are we going to go see and what are we going to talk to? And we finally gave our product a brand name, which we refer to as NaviScript. And NaviScript is our e-prescribing medication order delivery.
And one of the things that we had to take into consideration was a whole different set of technology that was already deployed inside the hospice industry, and that's known as the hospice EMR.
[18:20] Justin Venneri: Okay.
[18:21] Nick Opalich: And there's a lot of misunderstanding and misquoting and overstepping and overselling when it comes to what they call integrations with EMRs, like with our NaviScript. And we recognize that. And in my opinion, and I can stand corrected, you're never going to be able to what I call a full dual integration with an EMR.
The EMR is not going to allow you to do that. And frankly, Justin, it's probably not a good idea for any vendor, hospice, PBM such as ourselves, to push data back to the EMR. But when the day comes where there's sort of an allowance where we can do a direct integration involving the provider and the EMR, where they would accept data coming back in. I mean, we'll be right there.
[19:25] Justin Venneri: That makes sense. And I definitely hear you on the analogs there between your world, your system and the PBM world. And just in general healthcare, how siloed systems are and how if there is an opportunity to integrate and share data, sometimes it's more difficult than it should be.
[19:40] Nick Opalich: Yes, indeed.
[19:41] Justin Venneri: So you said something earlier, Nick, that I thought was interesting about NADAC: the reaction from pharmacists, like an independent pharmacist. And I had an experience with this recently at a local pharmacy here, an independent pharmacy down the street that I get my kids prescriptions at. And I had my Capital Rx – if you could see, I have a Capital Rx hoodie on right now for this discussion. But I had my Capital Rx vest on because I had actually had a meeting that day.
So the woman behind the counter, she says, "So what's Capital Rx? The Rx, what is that?" I said, "We're a PBM." And she goes, okay, you want to just, you can just walk out. I said, well we're, we're, you know, independent PBM and we leverage NADAC. And the pharmacist behind the counter kind of perked up and he's like, wait, what, what was that? And I said, yeah, so we have a NADAC based commercial network. And I now I have to get him in touch with our VP of Provider Relations, Kasi, to talk about how it works and possibly being part of the network.
But I find that there's an interest there about using NADAC. Does it really just come down to something predictable where there's not going to be -- and I don't know if the clawbacks and other things are an issue in the hospice space like they are in the commercial space -- but does it really just come down to understanding like what the NADAC price is and what the dispense fee would be on top of that? So, it's more like a contracting thing? Or is there something else going on there that requires more education is my question.
[21:00] Nick Opalich: Well, in our case for the hospice benefit, it requires a little bit more education. But when we have a fair opportunity to talk to the pharmacy, one of the very first things that we're going to tell them, nd that is, well, number one, there's no spread here. Okay, so we're not spreading, we're not making any money of any kind on any drug. We don't do that.
[21:28] Justin Venneri: That resonates. I get it.
[21:30] Nick Opalich: You know, we don't do that. And we're very transparent with that.
What I think in some instances, Justin, is this. So when I owned a pharmacy, part of my pharmacy was specialty, part of my pharmacy was infusion, and another part was compounding. And we ran extensive P&Ls, right? We did contribution margin analysis. So we weren't playing the games of trying to pick the best drug to maximize the profit or dispensed by NDCs. We were typical. We bought our drugs from either McKesson or Cardinal. We had a cost coming in. For the most part, the inventory expense when you're buying from a Cardinal or McKesson, cared for by them because they're delivering daily. Right? So I don't have to have a million dollars of inventory.
And so I was always able to know exactly how much I was making on a particular drug. We don't see that in the pharmacy space. So therefore, right off the bat, NADAC becomes that's cost. And then you ask the question, well, do you really know what you're making on AWP? You know, you're getting AWP-50% or 30% or something. What is that? And you could have 25, 30 drugs inside of an NDC.
And it starts off on that plateau. And it only will work in instances where you have an open-minded pharmacy and they don't feel the threat. And that's where we bend over backwards to just try not to be a threat. It's like Mr. Venneri, you run a hospice provider, you like Justin's Pharmacy. Beautiful. Now we just have to come together and realize we're going to be partners in this and we're going to work together. And I'm here to tell you as the owner of the pharmacy, we're going to work this out where you are going to feel absolutely at the end that you're being dealt with fairly, and that you're going to get a fair reimbursement.
Because the squeeze is on everybody; the squeeze is on the provider. It's not like they're getting rich. You know, they're going to live with a 2.5% increase from CMS. And that further causes constraints. And by the way, there are a number of hospices in the United States that go above and beyond the level of care in terms of providing greater levels of care to a hospice patient than another. Which means they have more cost. So they got to pack away all the DME, oxygen and things of that like.
But again, drug is a big expense. So that's the easiest one to pick on.
[24:36] Justin Venneri: Nick, I just have a couple more questions for you. Really appreciate you sharing your insights on the hospice space and how pharmacy fits into that. I think I remember back in the day it would be, you know, there's always pressure on reimbursement or, you know, ~2% percent increase. Or out of nowhere some MedPack report would come out and say, you know, home health providers are earning too much of margin and WAC that rate by some percentage and it would send the stock spiraling. Is that still an issue?
[25:02] Nick Opalich: Oh, yes, there is a high level of scrutiny. And what we're seeing today is all different types of what we call desk audits where they're just going to go in and they're going to audit a file.
And the number one thing that CMS is looking for is -- fraud is costing CMS in the hospice space a great deal of money.
Now what does that have to do with a legitimate operator of a hospice? Nothing. But they gotta now go in there and find ways -- this is CMS now -- going in there to find ways. how much money can we claw back? Right?
And so, yes, it's compliance. And when you think about what I just said and then think about everything else that happens at the forefront -- setting up the patient, making sure that you have all of your demographic data correct, making sure that, you know, you're going to cross your T's and dot your I's, reporting, that you're going to be writing up the reports in a correct fashion. And hospices investing in new software to do those things, like a NaviScript, are going to make it much easier for them to operate their business.
And to all of our benefit, squash out the bad players, the fraudulent players. And so again, and they get a 2.% bump in reimbursement. You know, it's going to be tough. And so more and more hospices are going to be looking at all this. They're going to be looking at new home care system software. They're going to be looking at new ways of doing business because there are just only so many areas where you can cut.
[26:48] Justin Venneri: Can you give me one quick example of, you know, AI in this equation, in the technology stack? What's one way AI is helping?
[26:55] Nick Opalich: What we call workflow and understanding a workflow at the hospice is we take a look at the steps that the nurse clinicians take to put together an order and then we look at that and say, what piece of that and what components of that can we automate?
By the way, what's the easiest thing to say pretty much is we probably can automate everything, right?
[27:25] Justin Venneri: Sure.
[27:26] Nick Opalich: Then it becomes, if you think of that, the more you automate, the bigger the educational curve because now you got to teach the system back and everything.
So every hospice files an annual cost report with CMS. And so those reports are publicly available. And if you want to go to the website of CMS to manipulate that data, you can basically build P&Ls for every hospice in the country.
So one of the things that we're doing right now is taking a look at the drug spend and using analytics to help us identify, you know, the areas where the hospice may have a high drug cost.
The area of hospice reporting in terms of what we can give back to the hospice is – a lot of it is in development right now.
[28:23] Justin Venneri: Okay.
[28:24] Nick Opalich: And we're going to be delivering, probably you can take your 10 reports that are going to be needed the most and then be able to provide those in real time back to the hospice in terms of how much time it took, you know, to upload a patient.
We're analyzing a lot of things about how much time is actually spent on ordering to give them that. And we just did, the perfect example, and I'll end on this, is that we were able this last week when we were talking with a decent sized hospice when we told them about some of these things -- and we were on a Zoom conference and we had the VP of Clinical Affairs and the Director -- and we were telling them things about their business that they question. You could see the look on their face. They went, whoa.
And one of them fact checked us in real time where she had mentioned to us, well, I think that includes DME. And we said, no, it could be. But she went back immediately, talked to the Senior Accountant and they came right back right away and said, no, that's all drug.
So it makes it more believable, and it's all part of the story and tying all the pieces together.
[29:47] Justin Venneri: It's funny, in that same conversation I had with the pharmacist when I was like, we're a health tech company. They're like, well, wait, but you're a PBM? Health tech? Well, we can't do what we do for clients, administering their pharmacy benefit, without our technology platform. And it sounds like it's very similar for you.
So, last question: what is the most astonishing or surprising thing that you've seen related to the discussion we had here today that you can share, of course?
[30:10] Nick Opalich: Well, one of the things that continues to remain very important, as I see it, and that is to make ourselves shine uniquely. Because some of the things that we discuss today a lot of hospices find hard to believe. Like, are you really working on our behalf? And the answer to that question is yes, we really are.
We really want to change the industry. And I think there is a glaring example of a PBM that's out there already that has made some significant impact in the marketplace with NADAC. I think, you know, I might be talking about. And you know, we're trying to do the same thing for our business, HospiceChoice, and to clear out the clutter and the misunderstanding that competition creates around all of these areas, like technology, services, reimbursement, etc.
[31:16] Justin Venneri: Got it. Well, Nick, thanks so much. I learned a ton from this discussion, and I really appreciate you taking your time to share your knowledge with us. Hope to have you back on and see how things are progressing for you in HospiceChoice Rx.
[31:25] Nick Opalich: Sure. Thank you very much, Justin.
For Reference
- Hospice industry Facts & Figures (NHPCO, 2024)
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