DIR: Trends, Issues, and Impending Impacts

Transcription

1 DIR: Trends, Issues, and Impending Impacts Lari Harding Vice President, Product Marketing Chris Smith, R.Ph Director, Pharmacy Business Intelligence 1

2 Disclosures Lari Harding is the Vice President, Product Marketing with Inmar. The conflict of interest was resolved by peer review of the slide content. Chris Smith is the Director, Pharmacy Business Intelligence with Inmar. The conflict of interest was resolved by peer review of the slide content. Learning Objectives Define how DIR fees are assessed, the current range of clawbacks, industry benchmarks, and mitigation strategies. Execute accounting best practices for predicting DIR and managing cash flow. Evaluate DIR technology tools and service solutions from PSAOs, Central Pay, and Reconciliation providers. 2

3 What are DIR fees? DIR is the abbreviation for Direct and Indirect Remuneration 11 types of DIR Any and all rebates, subsidies, or other price concessions that serve to decrease the costs incurred by the Part D Plan sponsor for a drug Includes discounts, chargebacks or rebates, cash discounts, free goods contingent of a purchase agreement, up-front payments, coupons, goods in kind, free or reduced price services or grants, or other price concessions from all stakeholders What are DIR fees? Reported annually to CMS: PBM Rebates Rebates accrued All other* Rebate admin fees reported as DIR Price concessions for admin services Price concessions from manufacturers Legal settlements Amounts Received from Pharmacies (New as of 6/23/17) Amounts Paid to Pharmacies (New as of 6/23/17) Risk sharing adjustments All other DIR* 3

4 Pharmacies Have Dubbed Them Clawbacks and some other 4 letter words The money is generally recouped Weekly, Quarterly or in Trimesters as a takeback on the 835s in a non-standard way There is usually no reasonable chance to earn the whole fee back No standard set of measures The fee is sometimes charged against products where adherence isn t an opportunity Fee sometimes exceeds dispensing fee, and in some cases the whole revenue collected There is no transparency at the point of sale making it very difficult to run a business Where did DIR come from? Important to understand the process on how Medicare Part D (MPD) plans are built Every year, a plan has to create a bid for a given plan for a particular geographic area The bid contains all information that Center for Medicare and Medicaid Services (CMS) requests in order to award the bid. A bid can contain 2000 pages or more! Certain aspects of the bid are due at different times: Formulary by April 18 Full bid by first Monday in June The bid projects what premiums, copays, risk adjustments, rebates, and the monthly funding needed from the Federal government Reconciliation with CMS by end of June of next calendar year 4

5 Help from CMS??? Source: Final Medicare Part D DIR Reporting Requirements for 2015_1.pdf published May 31, Regular Pharmacy Plan vs MPD plan financials IN OUT IN OUT Employer Premium Overhead Risk Corridor Risk Corridor Overhead Other Providers Tax $ CMS Your Premium DIR Premiums Providers 5

6 Gross DIR Impact DIR STATS Started in 2013 Burst on the scene in 2015 Retrospective, non-standard assessment $50K-$100K/pharmacy at risk Complex formulas and changes every year Some intended to be Quality based and often punitive Average $250 brand claim could be assessed a fee of $7.50 to $13.75 Average pharmacy Gross Profit per Brand Rx is ~$15 DIR Fee is 50 90% of gross profit What is at stake? In an analysis of multiple clients across all industry segments, the average amount of sales subject to DIR was 39.4% of ALL Third Party sales. Low was 31.5%. High was 47.66% By PBM, Prime Therapeutics was the lowest at 5.32% of Sales subject to DIR, and Aetna was the highest at 73.47%. Low: 40.6% High: 91.6% Avg: 73.5% Low: 32.1% High: 51.4% Avg: 39.2% Low: 32.1% High: 51.4% Avg: 21.0% 6

7 Industry Trend: 2015 to % 1.2% 1.23% 1.32% 1.0% 0.88% 0.93% 0.88% 1.00% 0.97% 0.8% 0.78% 0.94% 0.6% 0.60% 0.60% 0.62% 0.61% 0.55% 0.61% 0.58% 0.60% 0.4% 0.25% 0.27% 0.36% 0.2% 0.35% 0.28% 0.31% 0.27% 0.27% 0.26% 0.42% 0.37% 0.45% 0.37% 0.0% Q Q Q Q Q Q Q Q Q Q Service Fees as % of Sales DIR Fees as a % of Sales Let s break it down further According to Inmar data, the average pharmacy does ~60K Rx s per year at $72/Rx. This means the average pharmacy generates $4.32 MM in Sales and $864,000 in profit based on a 20% gross margin. DIR of $43,200 is 1% of Total Sales, but 5% of Total Gross Profit DIR is 2.82% of Part D sales, but 14.8% of Part D Gross Profit 7

8 Metrics are changing the pharmacy business model There are five flavors of value based/quality contracting Pure Incentive Pay In and Earn Back DIR Penalty Scale Modifiers: HRMs are Heavily Weighted Weighted Averages Plus MTM Methods of DIR assessment % of Ingredient Revenue % of AWP Per Rx $ fee (straight or scaled) Rate True-up Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Trimester 1 Claims Trimester 1 Trimester 1 Collection CAREMARK Trimester 2 Claims Trimester 2 Trimester 2 Collection Trimester 3 Claims Caremark Trimester 3 Caremark Trimester 3 Collection CIGNA Q1 Reported DIR fees collected per claim via 835 files YTD Reported (Q1- Q2) YTD Reported (Q1- Q3) 2017 Reported (Q1- Q4) 2017 DIR Rebate Payment DIR fees collected per claim via 835 files EnvisonRX Q1 Reported Q2 Reported Q3 Reported Q4 Reported Contingent performance fees collected on a per claim basis, via 835 file Optum RX Contingent performance measurements, 2017 calendar year to date Contingent performance fee calculation Fee Reconciliation 8

9 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 ESI Magellan Q1 Reported Measurement Lump Sum DIR Fee Collection DIR fees collected per claim, via 835 file Q2 Reported Measurement Lump Sum DIR Fee Collection Q3 Reported Lump Sum DIR Fee Collection and potential for either Rebate or Additional Collection Measurement Lump Sum DIR Fee Collection Lump Sum DIR Fee Collection Prime Therapeutic Measurement Measurement Lump Sum DIR Fee Collection Lump Sum DIR Fee Collection Measurement Lump Sum DIR Fee Collection DIR Contracts. Quality or $? Type Number of Plans with DIR How have pharmacies reacted? CVS 7 2 Number w Quality as some component Number with Mixed Quality and GDR 9 8 or 10* 5 5 or 7* Walgreens Walmart Rite Aid 0 1 Number with Quality Only 4 3 Kroger 13 9 *Depending on contract From Drug Channels blog. 9

10 What is happening from a policy perspective? 2014 Medicare Part D Call letter and related follow up, finally settled in September of 2014, made effective for CY 2016 attempted to delineate what price concession needed to be reported at point of sale via the PDE and what needed to be reported via the DIR mechanisms. Established the rule that Amounts that cannot be reasonably determined at the Point-of-Sale will be reported as DIR. Final Medicare Part D DIR Reporting Requirements for 2015 published May 31, 2016 established: What was and was not considered DIR (table published earlier) What category the DIR associated with pharmacy needed to be reported to The DIR Storm 10

11 White Papers The Response was Overwhelming 11

12 Legislation H.R "Improving Transparency and Accuracy in Medicare Part D Spending Act" Seeks to prohibit post adjudication DIR Fees. Currently referred to the House Energy and Commerce Subcommittee on Health. H.R "Prescription Drug Transparency Act" Limits PBM power by disallowing PBMs to use PHI to a pharmacy owned by a PBM without the enrollee's permission or incentivizing an enrollee to use pharmacy owned by PBM. Currently referred to the House Energy and Commerce Subcommittee on Health. S. 637 "Creating Transparency to Have Drug Rebates Unlocked Act of 2017" Makes public all rebates, discounts, and price concessions enjoyed by PBMs. Currently referred to the Senate Finance Committee on Health. NCPDP The DIR Task Group under Work Group 45 has: Defined our objective and purpose statement for the DIR task group Defined Types of DIR's seen in the industry today Outlined initial recommendations for Script Level DIR assessments Working on DIR at PLB and PLB with Script ties 12

13 Mitigation Strategies Four ways to gain some control over DIR: Understand your contracts Understand how assessed and when Determine if it is worth it to intervene with patients or on metrics, ID the opportunities, then act! Know your market The Problem with Percent(ile) 82% 70% PDC 80% PDC 90% PDC 82% 70% PDC 90% PDC 80% PDC 13

14 From an Accounting Perspective They are a sales adjustment because the pharmacy agreed to accept a lower reimbursement or revenue amount based on the contract Accruals are important so that you are not surprised by the 3-4 times a year when the takeback surges occur Forecasting is challenging because the comparison points of your peers is not clear, visible and transparent There are tools available to help you plan your finances to appropriately protect yourself from your PSAO, central pay provider, software vendor, and reconciliation providers What You Can Do in Contracting Self Contracting Make financial projections based on your anticipated performance and your contract terms Reconcile DIR claims to your contracts & assess your pharmacy impact Understand the plans, drugs, patients and opportunities for better performance Using a PSAO Have your PSAO share the expected takeback based on contracts Use the data to understand the drugs and the patients so that you can improve Assess your pharmacy impact with your PSAO 14

15 What What You You Can Can Do Do Financially In-House Reconciliation Accrue monthly for the sales adjustments so that you are not overstating sales and profits Report DIR as a sales adjustment, not a business expense or bad debt Build tools to analyze DIR, profitability and ways to improve results Outsourced Reconciliation Participate in Central Pay escrow programs and/or accrue monthly for the sales adjustment Report DIR as a sales adjustment, not a business expense or bad debt Work with your reconciliation provider to continuously improve the toolset available to get insights Evolve to prescriptive and predictive analytics What You Can Do Operationally Participate in pharma and plan funded programs that can improve performance Aggregate and de-identify your data to share your data with CMS Leverage 90 Day Fills, easier to go 4 for 4, than 10 for 12 Med Sync Auto-refill programs Engage on MTM cases & look for vendor support 15

16 Future Implications What if: DIR grew to all Part D plans and MA-PD Plans? $57K More DIR per Pharmacy DIR Expanded to Commercial? At 4% of Ing Rev*=3.9% of Sales or $170K per Pharmacy At 4% of AWP=9.8% of Sales or $423K per Pharmacy At 20% margin, the average pharmacy=$864k in gross profit annually. With the above metrics, DIR would mean an INCREMENTAL $227 to $480K less in gross profit. *Ingredient Revenue = Total Reimbursement minus dispensing fee Questions? 16