DIR fees are knocking down pharmacy profits

Transcription

1 16 America s PHARMACIST November 2016

2 DIR fees are knocking down pharmacy profits by Bruce A. Semingson, Pharmacist In 2016, retail pharmacy will pay between $360 million and $2.16 billion in direct and indirect remuneration (DIR) fees to Medicare Part D plans, according to my calculations as outlined in Table 1. In the majority of cases these fees have been paid to participate in various preferred or narrow pharmacy networks established by the plan. Today, industry sources and pharmacy blogs estimate that flat DIR fees range from $2 to more than $7.50 per prescription and may also be assessed as a percentage, thus having greater variability. (See reference 1 at end of article.) These fees are lowering gross profits for retail pharmacies more than ever before. Editor s Note: This is the first of a two-part series. 17

3 Prescription DIR fees emerged in 2012 when Humana and Walmart launched the first Medicare Part D Preferred Network. Patients utilizing Walmart pharmacies paid copayments which were up to $9 less or coinsurance up to 17 percent less than those available at other Humana network pharmacies. (See Table 1.) The use of DIR fees has a greater positive impact on sponsor profitability than deeper reimbursement discounts paid to pharmacies. DIR BROADLY DEFINED DIR, defined by the Centers for Medicare & Medicaid Services (42 C.F.R ), consists of any and all rebates, subsidies or other price concessions from any source including manufacturers, pharmacies, enrollees, or any other person that serves to decrease the costs incurred by the Part D sponsor (whether directly or indirectly) for Part D drugs. The DIR includes discounts, chargebacks, rebates, cash discounts, free goods contingent on a purchase agreement, upfront payments, and coupons. The CMS definition also states price concessions that are not considered to directly or indirectly impact drug costs incurred by the Part D sponsor are not included in DIRs. Following the introduction and subsequent evaluation of the success of the Humana-Walmart preferred network, other prescription drug plans added preferred networks, leading to today s saturation point. It is estimated that 75 percent of Part D enrollees have access to a preferred network. (See reference 2 at end of article.) According to Adam J. Fein, PhD, author of the Drug Channels blog, 62 Medicare Part D plans have preferred or narrow networks representing 754 regional PDPs. Enrollment in these 62 plans totaled 14.9 million people, or 75 percent of the PDP total through Dec. 4, CMS prefers to label preferred networks Preferred Cost Sharing Networks. Enrollees in these networks have lower out-of-pocket costs (copayments, coinsurance) than are available at other non-preferred network pharmacies enrolled in the plan s pharmacy network. Cost sharing in for low income subsidy patients is limited by law and they are less likely to be influenced by plan design such as preferred networks. (See Table 2.) However, pharmacies enrolled in a preferred network pay DIR fees for all claims dispensed. DIR fees are paid by participating pharmacies to the plan sponsor or its affiliated PBM. Plan sponsors consider the DIR fee a cost control method as it is outside the adjudication process. The plan sponsor can utilize these fees to modify patient benefits, reduce patient out-of-pocket costs or premiums, and to enhance a plan s profitability. DIR fees are reportable to CMS after the close of each plan year. They are not identified or reported at the point of sale. (NCPA has urged CMS to require plans to estimate DIR fees at point of sale.) REIMBURSEMENT UNCERTAINTIES From a retail pharmacy perspective, the total reimbursement, when a DIR fee is applied, is the adjudicated rate (calculated product reimbursement plus dispensing fee or maximum allowable cost plus dispensing fee etc.) minus the DIR. As DIR fees are invoiced by the plan to the pharmacy months after claims are adjudicated, a pharmacy will not know the total reimbursement (or gross profit) until Table 1. First Part D Preferred Network Cost Sharing Design Walmart PN Non-Preferred Network Mail Order Tier 1 Preferred Generics Tier 2 Non-Preferred Generics Tier 3 Preferred Brands Tier 4 Non-Preferred Brands $1 Copay $10 Copay $0 $5 Copay $12 Copay $0 20% Coinsurance 37% Coinsurance 20% 35% Coinsurance 40% Coinsurance 35% Source: 2012 Summary of Benefits. Humana Walmart Preferred Rx Plan (PDP). North Carolina Department of Insurance America s PHARMACIST November 2016

4 many months in the future. By law, the Medicare program is prohibited from becoming involved in negotiations among plan sponsors and pharmacies. The use of DIR fees has a greater positive impact on sponsor profitability than deeper reimbursement discounts paid to pharmacies. DIR fees reduce the cost of patient benefits, such as out-of-pocket costs, which are reflected in the PDP premium. A lower premium is more competitive, increasing the opportunity of an increase in enrollment and ultimately increased profitability. It is logical, then, that the use of DIR fees has resulted in a significant decrease in profitability for retail pharmacies. As DIR fees are outside of the adjudication process, they are not visible to beneficiaries, other Medicare Part D plans, or pharmacy competitors. DIR fees are assessed by various methods, typically either a flat fee for every prescription dispensed to plan patients, or a percentage of ingredient costs, and may be further adjusted based on performance metrics. DIR fees linked to performance metrics established by CMS for Part D plan star ratings may be even more onerous for pharmacies that do not meet performance benchmarks. CMS has quality measurement programs to reward physicians and hospitals and other providers when they meet defined performance measures, and it rewards Medicare Advantage Prescription Drug Plans (MAPDs, aka Part C) and PDPs when defined performance measures are realized. Unfortunately, the linking of star measures with pharmacy DIR fees is a deviation from the intent of the Medicare Part D Star Ratings Program 19

5 are five pharmacy-specific measurers: high-risk medications (HRM); medication adherence for diabetes medications; medication adherence for hypertension (RAS antagonists); medication adherence for cholesterol (statins); and MTM program completion rates for comprehensive medication reviews (CMRs). A plan with the highest rating, 5 stars, enjoys certain marketing and financial rewards such as year-round enrollment. PDPs and MAPDs with low star ratings have restrictions and may be terminated by CMS. Plan ratings are included in the Medicare Plan Finder website ( and from the accepted definition of the word performance. Imagine, as an employer, your top performing employees are rewarded by reducing their compensation. UNDERSTANDING THE PART D BIDDING PROCESS It is critical for retail pharmacies and/ or their pharmacy services administrative organizations to understand the CMS Part D bidding process for plan sponsors relating to medication therapy management (MTM) services and star ratings, because retail pharmacies are being measured on some of these performance metrics. For the 2016 plan year, CMS utilizes 32 measures to determine a Star Rating for Medicare Part C plans and 15 measures for Part D plans. Included All PDPs and MAPDs submit annual bids to CMS seeking continuation or admission to participate in the subsequent year s annual enrollment of Medicare eligible patients. The bids are complex and include a description of the patient benefits, patient out-of-pocket costs, drugs included in the formularies, monthly premiums, pharmacy networks, service areas, and more. Table 2. Estimated Total DIR/Access Fees Industry experts estimated that people 65 years of age and older take from 2 to over 6 prescription drugs on a regular basis. An estimated 15 million people are enrolled in PDPs with preferred networks as of December Following is a calculation of annual DIR/access fees assuming that only 50% of the 15 million enrollees utilized a PN. Number of enrollees Est. % utilizing PN Average # prescriptions per month # Annual prescriptions DIR/Access Fee Est. total annual fees 15,000,000 50% 2 24 $2.00 $360,000,000 15,000,000 50% 2 24 $4.00 $720,000,000 15,000,000 50% 4 48 $2.00 $720,000,000 15,000,000 50% 4 48 $4.00 $1,440,000,000 15,000,000 50% 6 72 $2.00 $1,080,000,000 15,000,000 50% 6 72 $4.00 $2,160,000,000 Notation: As of Dec. 4, 2015, Drug Channels reported 19.9 million enrollees in the 10 largest PDPs with preferred pharmacy networks. A total of 14.9 million have access to a preferred network. Sources: Medicare Part D Contract and Enrollment Data, Centers for Medicare and Medicaid Services, June 18, Medicare Part D 2016, 75% of Seniors in a Preferred Pharmacy Network, Drug Channels, Jan. 20, America s PHARMACIST November 2016

6 PART D OFTEN TIED TO DIR FEES Today many Part D Plans utilize one or more of the pharmacy quality measures in the Medicare Part D Star Ratings Program to rate the pharmacy performance level versus their peers. The performance level is often tied to DIR fees for participation in the plan s performance network. Below is a hypothetical example: Assume that a plan applies the medication adherence for cholesterol measure in order to create a tiered assessment of DIR fees. In this example, if a pharmacy achieves a Tier 1 score during the measurement period (usually a calendar quarter), it will be invoiced the corresponding fee, in arrears, for every prescription dispensed to plan members during the measurement period. It has been reported that some Medicare plans utilize generic dispensing rates to determine DIR fees. Several other entities have emerged that specialize in reporting pharmacy quality measures, such as adherence and HRM use. These entities include PQA s EQuiPP, imedicare, Prescribe- Wellness, Ateb, Mevesi, Rx30, Q/S1's engage, and PioneerRx. While the example described earlier is hypothetical, pharmacy owners can apply similar logic to determine their performance level and future DIR fees. It is critical to project the future DIR fee costs to have the cash available for payment. Follow these steps: 1. Identify contracted Part D plans with applicable DIR fees. Tier Statin adherence score DIR fee per prescription 1 85% or greater $ % $3 3 70% or less $4

7 Many questions remain regarding the use of DIR fees. The following are some of most prominent. 1. Will CMS review PDP and MAPD conditions of use of DIR fees, accountability and transparency? 2. Do these DIR fees conform to CMS regulations which require that they lower patient out-of-pocket costs and/or premiums? 3. CMS currently permits the collection of DIR fees and they are reported to CMS at the end of each plan year. Will CMS audit the disbursement of these fees? Bills That Would Ban Retroactive DIRs in Part D Pending in Congress NCPA will be urging Congress, which is expected to hold a post-election lame duck session this month, not to adjourn before acting on legislation that would prohibit retroactive direct and indirect remuneration pharmacy fees on clean claims in Medicare Part D. Through NCPA advocacy efforts, bills to do so have been introduced in both the Senate and the House. Cosponsors were added thanks to the thousands of s NCPA members have sent to congressional offices. S has nine signed Senate supporters and H.R has 24 in the House. The identical measures are backed by nearly 100 pharmacy stakeholder organizations including 40 state pharmacy associations, wholesalers, grocery stores, buying groups, and regional chain pharmacies, along with independent community pharmacies and franchisees. The bipartisan bills are titled the Improving Transparency and Accuracy in Medicare Part D Spending Act. At last month s NCPA Annual Convention, the House of Delegates adopted a resolution strongly endorsing legislation to ban postdispensing DIR fees in Part D. Since the advent of Medicare Part D, pharmacists have demonstrated their commitment to its success. They invested an incalculable amount of time and resources educating patients about the program and how to select Part D plans that met their needs (a process that continues to this day). They endorsed and supported various MTM programs, often at a financial loss, and they implemented compliance and adherence programs which support CMS initiatives and patient well-being. Now, contract terms require pharmacies to pay DIR fees if they desire to participate in a preferred network. Absence from a preferred network may lead to the loss of patients. Patients select pharmacists based on many factors, but most importantly because they respect and trust them to take care of their health needs. a. Determine the performance metrics and fee tiers. 2. Identify your patients in these plans. 3. Track your pharmacy performance metrics, by plan, utilizing one of the available service entities identified previously. Contact your pharmacy dispensing system entity to assist you. 4. Once your performance tier is determined, multiply the number of the dispensed prescriptions for patients in the plan in the measurement period times a DIR fee. This total is your estimated account payable for this plan. 5. Your contract will define the settlement terms of this payable 6. Contact your PSAO to determine fee calculation methodology and settlement terms. Retail pharmacies, as well as all health care providers, are experiencing major changes in the delivery of health care services to patients. CMS, insurers, and health plans are attempting to transition the delivery of health care from a system based on a fee-for-service aka quantity payment system, to one based on quality and outcomes. In pharmacy, this transition is changing the business model from one based 22 America s PHARMACIST November 2016

8 solely on margins and profits derived from the dispensing of prescription drugs to one where dispensing margins are close to acquisition costs and pharmacists are paid for patient care services and performance. During this transition, plans/payers have the obligation to structure payments methodology for prescription drugs in a clear and transparent manner. In addition, plans and payers must structure performance programs to reward high performing pharmacies that excel in patient services and outcomes. Partnerships between plans, pharmacists, physicians, hospitals, and manufacturers would be ideal. Pay-for-performance is emerging, which will be discussed in my next article Pharmacy based Pay for Performance Programs: Improving Patient Health Care, in the December 2016 issue of America s Pharmacist. Bruce A. Semingson, Pharmacist, is president of Pharmacy Perspectives, LLC, Cave Creek, Ariz. He can be reached at bruce.semingson@gmail.com. References 1. Pharmacies Face Financial Harships with Rising DIR Fees, Pharmacy Times, July 28, 2016; Rising Fees Pinch Some Pharmacies, Wall Street Journal, Nov. 3, 2015, page B8; Pharmacy Development Services, Blog, July 18, 2016; Community Pharmacists cite problems with DIR fees, NCPA, June Medicare Part D Contract and Enrollment Data, Centers for Medicare and Medicaid Services, June 18, Medicare Part D 2016, 75% of Seniors in a Preferred Pharmacy Network, Drug Channels, Jan. 20, 2016.