Presented January 20 th by Pharmacy Healthcare Solu7ons, Inc. Don Dietz, R.Ph, MS, Vice President
Disclosures Don Dietz is an employee of Pharmacy Healthcare Solu0ons, Inc. The conflict of interest was resolved by peer review of the slide content. He declares no other conflicts of interest or financial interest in any product or service men0oned in this program, including grants, employment, gips, stock holdings, and honoraria. ASAP s and NCPA s educa0on staff declares no conflicts of interest or financial interest in any product or service men0oned in this program, including grants, employment, gips, stock holdings, and honoraria.
Learning Objec7ves 1. Define DIR; explain CMS s original intent and how PBMs have interpreted DIR fees for pharmacy reimbursement. 2. Describe why DIR fees have frustrated retail pharmacies when processing Medicare D claims. 3. Understand how the delay in assessing fees retrospec0vely creates issues for retail pharmacy. 4. Describe how pa0ents can be adversely affected by claw-back fees impac0ng their copayment 5. Review poten0al solu0ons under considera0on to add clarity to the current DIR situa0on.
Agenda DIR Fee Defini0on DIR Transparency Pharmacy Profitability Types of DIR Fees Flat-dollar Percentage Performed-based Considera0ons and Poten0al Solu0ons Conclusions & Recommenda0ons
CMS s Intent for DIR Fees Pharmacy DIR is embedded in a bigger issue, i.e. CMS wants to eliminate the ability of Part D sponsor and their downstream en00es to hide financial flows from CMS, regardless of their origin. The DIR is a catch all phrase and expansive. Original intent was to allow PBMs and Medicare to share in rebates that insurers received from drug manufacturers under Medicare Part D coverage Health plans/pbm are required to submit an annual DIR report to CMS which is used along with Prescrip0on Drug Event (PDE) data to true up payments by CMS to a Medicare Part D plan for the plan year
Direct and Indirect Remunera7on (DIR) Defini7on (CMS 42 CFR 423.308) Actually paid means that the costs must be actually incurred by the Part D sponsor and must be net of any direct or indirect remunera7on (including discounts, charge backs or rebates, cash discounts, free goods con0ngent on a purchase agreement, up-front payments, coupons, goods in kind, free or reducedprice services, grants, or other price concessions or similar benefits offered to some or all purchasers) from any source (including manufacturers, pharmacies, enrollees, or any other person) that would serve to decrease the costs incurred under the Part D plan.
DIR Fee Defini7on (cont) Direct and indirect remunera7on includes discounts, chargebacks or rebates, cash discounts, free goods con0ngent on a purchase agreement, up-front payments, coupons, goods in kind, free or reducedprice services, grants, or other price concessions or similar benefits from manufacturers, pharmacies or similar en00es obtained by an intermediary contrac7ng organiza7on with which the Part D plan sponsor has contracted, regardless of whether the intermediary contrac0ng organiza0on retains all or a por0on of the direct and indirect remunera0on or passes the en0re direct and indirect remunera0on to the Part D plan sponsor and regardless of the terms of the contract between the plan sponsor and the intermediary contrac0ng organiza0on.
Pharmacy DIR Fees True-up between target reimbursement rate in a PBM/pharmacy agreement and aggregated effec0ve rate realized by a pharmacy True-up between the aggregate MAC/ adjudicated rate and the aggregate contract rate Pay for play in preferred networks Payment mechanism for evalua0ng performance on quality measures
Nega7ve DIR Fees Pharmacy receives credit back from a PBM Can occur when a drug s MAC is below its contracted DIR rate Poten0al to protect pharmacies from some overly aggressive MAC prices, but pharmacy may s0ll be losing money on those prescrip0ons Implemented at the GER level vs. individual Rx level
DIR Fees, While Legi7mate, Are Not Always Transparent Inadequate disclosure at the 0me of contract execu0on Difficulty reconciling months aper dispensing Pharmacies open in mul0ple networks with major PBMs offering Med D, which leads to addi0onal confusion Quality metric measurements complicated and not easily verifiable Cannot accurately assess Rx sales and profitability DIR fees deducted from 835 Remilance Advice Not on adjudicated claim response
DIR Fee Nega7ve Impact on Pharmacy Profitability Walmart Cited lower reimbursement rates in pharmacy as a reason for a quarterly earnings slump Fred s Stores of TN Reduced profit outlook by $30 million, as fees account for 1% of Rx sales Diplomat Gross margin fell from 8% to 6.6%- DIR fees a major factor Stock down 50% Independents 92% of sales are in the pharmacy department; difficult to offset impact of DIR fees in the rest of the store
Typical Pharmacy Reimbursement: Single-Source Brand Drug AWP: $300 WAC: $250 Net Cost (WAC - 4%): $240 Reimbursement (AWP - 15% + $1 Dispensing Fee) = $256 Reimbursement - Cost = $256 - $240 = $16 gross profit Cost to dispense around $10 = $6 net profit Pharmacy collects the copayment at the point of sale PBM pays the balance due in 15-30 days Transac0on complete Profitable Rx for pharmacy
DIR Fee Example: Flat-Dollar per Claim AWP: $300 WAC: $250 Net Cost (WAC - 4%): $240 Reimbursement (AWP - 15% + $1 DF) = $256 Reimbursement - Cost - $7 DIR fee = $256 - $240 - $7 = $9 gross profit Cost to dispense of around $10 = -$1 loss DIR fees apply to all prescrip0ons, including discount generics! Pharmacy has a loss that is not seen at dispensing
DIR Fee Example: Percentage per Claim AWP: $300 WAC: $250 Net Cost (WAC - 4%): $240 Reimbursement (AWP - 15% + $1 DF) = $256 Reimbursement - Cost - 3% DIR fee = $256 - $240 - $7.68 = $8.32 gross profit Cost to dispense of around $10 = -$1.68 loss Pharmacy has a loss that is not seen at the 0me of dispensing
DIR Fee Types & Effects on Pharmacy Flat-Dollar DIR Fee Nega0vely impact retail pharmacies that dispense primarily inexpensive generics $4 lists DIR fee can be greater than the total reimbursement amount For brand/specialty, less impact on profitability Percentage DIR Fee Nega0vely impact specialty pharmacies that dispense high-cost medica0ons E.g. oncology pharmacy Less puni0ve on profitability for low cost generics
Performance-Based DIR Fees Incen0vize pharmacy performance on quality metrics to improve pa0ent outcomes Pharmacies that are beler performers get paid more Issues: Some factors are beyond pharmacy control Pa0ent-popula0on (e.g. retail pharmacy located in mental health clinic) Local physician(s) prescribing high-risk medica0ons Small number of pa0ents dicta0ng DIR fees across all Part D plan claims High-quality pharmacy providers have no incen0ve to ac0vely take on chronically ill, at-risk pa0ents because they will be penalized with higher DIR fees
Performance-Based DIR Fee Example Performance Category Weight Pharmacy A Performance Pharmacy B Performance ACE/ARB Adherence 20% 5 1 Sta0n Adherence 20% 5 1 Diabetes drug Adherence 20% 5 1 GAP Therapy (sta0n) 25% 5 1 CMR Comple0on Rate 5% 5 1 % High-Risk Meds 5% 5 1 Formulary Compliance 5% 5 1 Weighted Average: 5 1 Performance Score DIR Fee 5 3.5% 4 4.0% 3 4.5% 2 5.0% 1 5.5% DIR Fee is paid as a percentage of the ingredient cost paid 3.5% DIR Fee 5.5% DIR Fee
Performance-Based DIR Fee Example Performance Category Pharmacy A Performance Pharmacy B Performance Weighted Average: 5 1 3.5% DIR Fee 5.5% DIR Fee Impact on Drug Reimbursement Pharmacy A Pharmacy B Ingredient Cost $256 $256 Dispensing Fee Paid $1.00 $1.00 Pa0ent Copay $30 $30 Total Amount Paid $227 $227 DIR Fee $8.96 $14.08 Total Net Reimbursement $218.04 $212.92
Beyond Medicare to Commercial DIR fees are specific to Medicare Part D, but a similar process has been introduced in some commercial network agreements Networks Performance networks Discount card programs Fees Creden0aling fees Clawback fees Withhold amounts
Discount Card Claw Back Fees PBM contracts with pharmacy at rates less aggressive than funded Rx business, but savings over pharmacy U&C price PBM adjudicates claim, pharmacy collects 100% of adjudicated amount from pa0ent PBM Claws Back a fee (usually fixed dollar) from the pharmacy via withhold on next 835 Remilance Advice Fees vary widely by PBM Pharmacy ar0ficially believes the Rx is more profitable at the 0me of dispensing than aper Claw Back fee
Pharmacy Considera7ons Review PBM contracts with greater scru0ny Closely evaluate language on DIR fees Financially assess your network par0cipa0on for unprofitable plans Examine preferred vs. open network par0cipa0on and es0mated pa0ent loss if pharmacy selects open network PSAO contrac0ng op0ons Can I opt out of a nonprofitable agreement? Some PSAOs required pharmacies to take it or leave it when it comes to bundled plans, but others will allow contracts with smaller, op0onal bundles
Poten7al Strategies for DIR Fees More clearly define DIR fees in pharmacy network agreements with PBMs Es0mated DIR fees displayed/withheld at the 0me of dispensing to reflect actual reimbursement Greater PBM/Health plan transparency with DIR repor0ng, regulatory strategy Small or no true-up retrospec0vely
DIR Fee Proposed Legisla7on Federal legisla0on (H.R. 5951 and S. 3308) that would prohibit Medicare Part D sponsors/pbms from retroac0vely reducing payment on clean claims submiled by pharmacies under Medicare Part D, therefore elimina0ng retroac0ve pharmacy fees Supported by NCPA and NACDS Not likely to pass in the 114 th Congress, but expected to be re-introduced in the new session
Case Study: Medicare Part D Rebates During Non-Coverage (Donut Hole) Manufacturers are required to pay approximately 50% rebate during the donut hole Historically, rebates have been retrospec0ve PBMs could not adjudicate claims with rebates at the 0me of dispensing CMS required rebate considera0ons at the 0me of dispensing, with a reduc0on in pa0ent pay amounts PBMs found a way to es0mate rebates at the 0me of dispensing and reduced pa0ent copays accordingly
Performance Networks to expand Expect pharmacy to be asked to take on risk in future pharmacy network designs. How that risk is defined and the impact pharmacy can have on controlling it are key factors to evaluate Unless pharmacy network access is an issue, PBM will become selec0ve in picking the best pharmacy for a network Best today may be lowest price. In the future, it may be outcomes based Poten0al steering pa0ents to beler performing pharmacies
Conclusions & Recommenda7ons DIR will con0nue to be a conten0ous issue. Some pharmacy chains have reduced their par0cipa0on in preferred Part D networks as a result. However, others see it as an opportunity to increase Part D marketshare Reduced pharmacy profits will cause addi0onal pharmacy consolida0on In 2014, CMS published Proposed Guidance on Direct and Indirect Remunera0on and Pharmacy Price Concession to implement a process where virtually all price concessions are determined and reasonably approximated at point-of-sale Over two years later, pharmacies should push CMS to finalize and implement the proposed guidelines
Ques7ons? Pharmacy Healthcare Solu7ons, Inc. (PHSI) Don Dietz, R.PH, MS Vice President ddietz@phsirx.com