NovoLogix Inc. is not the easiest company to understand. But it does have a colorful past and an intriguing future.
Once a $400 million force in the home-health care market, the former Ancillary Care Management has remade itself into a software-as-a-service company that focuses on helping payers manage claims relating to fast growing demand for expensive medical pharmacy drugs. NovoLogix, which employs 54 people, serves payers like Blue Cross Blue Shield, Wellpoint and Tufts Health Plan.
Unlike regular prescription drugs, which consumers can buy at a CVS and swallow, medical pharmacy drugs (also known as specialty pharmacy drugs) are normally injected at a doctor’s office or a patient’s home to treat conditions like inflammation, multiple sclerosis and cancer.
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Specialty sales, including high-end biopharmaceuticals, grew 15.4 percent in 2008 compared to just 1.5 percent for traditional drugs, according to a report by Express Scripts, a top pharmacy benefits manager. The per-member, per-year (PMPY) pharmacy cost for producing specialty drugs totaled $98.77, about 43 percent higher than traditional drugs. By some estimates, specialty drug costs will exceed $1 trillion by 2030, or about 44 percent of a health plan’s total drug expenditures, compared to nearly $40 billion today.
As Ancillary Care Management (ACM), the company helped manage home-health care services, including medical equipment and infusion therapy, the intravenous delivery of specialty medications, for payers like UnitedHealth Group Inc. in Minnetonka, Minn. The company eventually generated $400 million in annual sales and attracted investors like UnitedHealth and venture capital firms Split Rock Partners in Eden Prairie, Delphi Ventures in Menlo Park, Calif., and Salix Ventures in Boston.
“They were the first company to figure out how to control cost” in the home-health care market, said Dave Stassen, managing director of Split Rock.
But a dispute with UnitedHealth threatened to unravel ACM. UnitedHealth, the nation’s largest private health insurer, tried to buy the entire company, but was rebuffed by the other investors, Stassen said. As a result, the UnitedHealth pulled its entire business from ACM, he said.
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UnitedHealth declined to comment.
Still, ACM had a good deal of cash and technology expertise so the company decided to refocus on managing specialty drug costs, Stassen said.
The company had “a very strong capability of software,” he said. ACM “could apply its best skill set in going after a substantial market with no [direct] competitors.”
ACM changed its name to NovoLogix and recruited Dave McLean as CEO. McLean is a founder and chairman of Medication Management Systems Inc., a spin-off from the University of Minnesota that sells software to helps patients and pharmacists better manage drug therapies by tracking types of medications, dosages, side effects, and, most importantly, whether they work. He also was CEO of RxHub Inc. in St. Paul and senior executive at UnitedHealth where he oversaw services for organ transplant patients.
NovoLogix’s core product is its Internet-based MedRx software that allows payers to more efficiently process medical pharmacy claims. Under the country’s byzantine health care system, medical and pharmacy drugs used two different reimbursement codes because of the different ways (retail vs. doctor’s office/home) patients receive the medications.
Pharmacy drugs operate on National Drug Codes (NDC), which offer a large range of prices based on brand, dosage and quantity. Medical drugs, by contrast, use simpler J-Codes, a subset of the Healthcare Common Procedure Coding System (HCPC). J-Codes typically offer only one price. NDC codes change often, while J-codes remain fairly constant.
“In the pharmacy benefit, it is common for pharmacy benefit managers to receive weekly or monthly updates of national standard pricing files,” Dr. Robert McDonald, founder and president of Aledo Consulting Inc. in Indianapolis, wrote in a 2008 issue of the Journal of Managed Care Pharmacy “Adjusting prices in the medical benefit is a much less dynamic process with prices only updated annually in many cases.”
“This dynamic can lead to some challenges for pharmacists within health plans,” McDonald said. “Some specialty pharmacy providers know exactly what they get paid in the medical and pharmacy benefit. When a pharmacist within a health plan starts bringing the issue of these differences in payment amounts to the staff that manages the medical benefit, it can be a very challenging conversation.”
Because there is no uniform national pricing system, payers using J-codes instead of NDC could wind up overpaying for medical drugs by 4 to 8 percent a year, McLean said. NovoLogix’s software allows payers to cross-link the two coding systems and find the right NDC for a medical drug.
“There is a big variance between what they pay for and the actual cost,” McLean said.
With medical drugs a fast-growing market, health plans and traditional pharmacy benefit managers (PBMs) like Medico and Express Scripts who negotiate prices with manufacturers on behalf of payers, are scrambling to keep up.
Major payers have established internal units to help manage specialty claims. For example, WellPoint operates Precision Rx Solutions, Aetna boasts Aetna Specialty Management and Cigna runs Tel-Drug Specialty Pharmacy. A group of Blue Cross Blue Shield companies own Prime Therapeutics as a joint venture, which owns and operates its own specialty pharmacy.
In short, NovoLogix finds itself smack in the middle of a large, but complex market for medical drugs that pits specialty pharmacies against traditional pharmacies, PBMs and health insurers.
“The opportunities for contracting with health plans and PBMs may become more complex in the future,” McDonald said. “Also, with the growth and consolidation of specialty pharmacies, these organizations themselves are now large companies that are typically a division within an even larger company.”
“Failing to consider whether a pharmacy contracts to a specialty pharmacy or to a health plan ignores a substantial amount of the specialty pharmacy opportunity and revenue that make up this dynamic and rapidly growing marketplace,” he said.
