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Negotiating vaccine reimbursement with managed care organizations
Know the cost of vaccines and their delivery when negotiating prices.
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Vaccines are big business, and negotiating reimbursement prices when contracting with a managed care organization can be tricky, according to a speaker at the AAP Annual Meeting in Boston.
Mark S. Reuben, MD, a pediatrician with Reading Pediatrics in Pennsylvania, said there are a few different ways to determine pricing.
“One is the CDC list price of vaccines. This is a nice reference point because it is the purchase selling price, and it can be found on the CDC website. It is updated when vaccine prices go up, so it’s current, and there are people within the AAP who are trying to tie their contracting to that price,” Reuben said.
Another pricing number is based on average wholesale. “The margin between my purchase price and my reimbursement is pretty substantial. That’s where we have made our money. Total vaccine payments in 2007 were $3.9 million, and we spent $2.3 million, so we have a margin on vaccines of $1.5 million,” Reuben added.
Developing a standard
Reuben said Pennsylvania has a law that mandates vaccine coverage for all Advisory Committee on Immunization Practices vaccines after they are published in the Morbidity and Mortality Weekly Report. The largest insurer in Pennsylvania reimburses average wholesale price plus 15%. “That’s a nice margin, and that becomes my standard for other insurers. If an insurer is offering average wholesale price and you get a good purchase price, you can get a 41% to 44% markup. My margin tends to be 56% to 59%,” Reuben said.
Some insurers offer best purchase price, which means that the insurer has made arrangements for the mass purchase of vaccines and the insurer will pay you the purchase price. Reuben said that this is completely unacceptable.
Others use the average sales price. “That’s nice, but it still leaves you with not too much margin, depending on how big your practice is and how much you can discount. One company uses the market price. You’ve got to watch that. New vaccines come out, and when they do, you need to have some ability to accept or reject the price they’re offering. If it’s not adequate, be sure to reject it,” Reuben said.
Average wholesale price
Average wholesale price is usually a 25% markup from the actual price. “If a company offers you average wholesale price, take it. If a company offers you average wholesale price plus 15%, be very happy,” Reuben added.
When going into negotiations, Reuben recommended “asking for the sky and accepting reality.” He recommended asking the insurer to guarantee at least monthly to quarterly updates, so that if the price of a particular vaccine increases, you are not locked into the lower reimbursement price for a long period of time.
According to Reuben, a 25% margin is needed to break even. “The number we came up with to break even after including staff time, loss of defective products and buying in bulk was 17% to 25%. This is in the Academy’s white paper, so if you’re bartering with the insurance companies, print that out and send it to them,” he said.
According to a study conducted in 2004, the cost of giving vaccines was $10.67 per shot in a pediatric office. Separate data from Arizona found that administrative costs were $18, with a range of $14 to $24. Subsequent injections cost about $11, with oral or nasal formulations costing about $.40 less. “Payment varied considerably company to company and practice to practice. Two of 10 practices showed a potential profit on their vaccines. Eight of 10 showed a loss. That is unacceptable. When looking at total cost plus administration, two of seven practices made a profit of $58 to $60 per child. Five of seven practices lost $70 to $290 per child. You can’t lose that much and stay in business. We need to educate the insurers, and we need to be willing to walk away from the contract when the reimbursement is inadequate,” he said.
Other tips for maximizing profit margins include purchasing vaccines with a credit card. This delays the payment and Reuben’s office uses the points earned on the credit card for travel. Ensure that new vaccines are covered by insurance before your purchase them. – by Michelle Stephenson
For more information:
- Reuben MS. Starting in practice — the early years. Presented at the Annual Meeting of the American Academy of Pediatrics. Oct. 11-14, 2008. Boston.