Centers for Medicare andMedicaid services (CMS) provide the pharmacy services to the beneficiariesthrough Part D plan sponsors. These plans in turn contract with the Pharmacybenefit managers (PBM’s) to administer the drug benefits. Medicare makespartially capitated payments to these plan sponsors for delivering drugbenefits to beneficiaries.
They completely rely on the transaction datareported by these plans to make accurate payments. PBM’s or Plan sponsors oftenreceive rebates from drug manufacturers which are not reported to CMS. Toresolve this issue, as part of Medicare Part D, Direct and Indirectremuneration fees was administered to transfer these benefits to federalreserves and in turn to beneficiaries from Pharmacy Benefit Managers or plansponsors. This concept was first documented in Medicare Modernization act of2003 (MMA). The primary objective ofinitiating DIR fees was to increase transparency of Medicare Part D costs. Asper 42 C.F.R.
§ 423.308, Direct and indirect remuneration includes discounts,chargebacks or rebates, cash discounts, free goods contingent on a purchaseagreement, up-front payments, coupons, goods in kind, free or reduced-priceservices, grants, or other price concessions or similar benefits frommanufacturers, pharmacies or similar entities obtained by an intermediarycontracting organization with which the Part D plan sponsor has contracted,regardless of whether the intermediary contracting organization retains all ora portion of the direct and indirect remuneration or passes the entire directand indirect remuneration to the Part D plan sponsor and regardless of theterms of the contract between the plan sponsor and the intermediary contractingorganization. Pros of DIR feesAccording to the articlepublished in American Journal of Pharmacy Benefits by Joshua Pirestani, the benefits ofimplementing DIR fees are Reduce overall program expenses: Part D sponsors and PBMs negotiate rebatesfrom drug manufacturers, as well as from pharmacies, and pass on these rebatesto the CMS. This can help reduce government expenses on healthcare and lowerindividual beneficiary premiums. The CMS acknowledges that rebates have helpedkeep member premiums low, even when drug prices have increased in general.Improve pharmacy performance: Private insurers insist that charging DIRto pharmacies based on their performance helps improve the services provided bythese businesses. These, in turn, ensure that patients receive the best possiblecare from their local pharmacists and have professional guidance on how toproperly take their medication.Implications of DIR for Medicare Part DCMS has observed a growingdisparity between gross Part D drug costs, calculated based on costs of drugs atthe point-of-sale, and net Part D drug costs, which account for all DIR.
Thesehave some implications on Part D program.Beneficiary cost sharing: Beneficiary’s cost-sharing is calculatedbased on the drug price at the point-of-sale, without regard to rebates andother price concessions received after the point-of-sale.Medicare Subsidy payments: The growth of rebates and other priceconcessions places more of the burden on beneficiary cost-sharing, Medicare’scosts for these beneficiaries also grow. Higher beneficiary cost-sharing alsoresults in the quicker progression of Part D enrollees through the Part D drugbenefit phases and potentially leads to higher costs in the catastrophic phase,where Medicare liability is generally around 80 percent. Implications of DIR for community pharmaciesPBM’s often receive therebates from manufacturers after the point of sale (POS).
Hence there is aprovision to change the final cost of drug and in turn change the reimbursementof the drug to the pharmacies. The overall point is to reduce the spending ofCMS for drug benefits to beneficiaries. But during recent times Total DIRreported by Part D sponsors has been growing significantly. Part D sponsors andPBMs are engaging to a greater extent in arrangements that feature compensationafter the point-of-sale, and the value of such compensation is also generallyincreasing. These lead to increase in copays for the patients and ambiguityabout the reimbursement for community pharmacies. This led to lot of pharmaciesdispensing the drugs for lower prices than the acquisition costs.
The rebatesprovided by the manufacturers to the giant PBM’s does not necessarily bringdown the drug pricing of wholesalers. This strategy leaves the smallindependent pharmacies uprooted due to the disparity in acquisition costs andreimbursements. Many pharmacies have noted a lack of transparency over thesefees and have claimed that this practice threatens their businesses and thepatients they serve. Also PBM’s imparted performedbased DIR fees which was initiated by CMS originally to track the performanceof PBM’s. This is in turn transferred onto the community pharmacies which (starrating) is used to rate the pharmacies and determine the extent of DIR feesbeing charged. The performance basedcharge for pharmacies can be found in a presentation given by Melanie Maxwell,MHP (Link provided in the references). Perhaps most critically, DIR Fees arecalculated retrospectively, and are assessed against the Pharmacy Provider manymonths after they have been reimbursed on claims submitted to the PBM.
Indeed,many PBMs utilize a four-month window to measure performance and thereafterassess DIR Fees against the Pharmacy Provider.However, it is important tonote that the Star Rating System was designed by CMS to apply to Part D plansponsors, not to Pharmacy Providers. Mostsignificantly, highly performing plans are entitled to quality bonus paymentsbased on the Star Rating system. Forexample, UnitedHealth care is due for an approximate $1.
4 billion bonus, whileHumana expects to receive a bonus upwards of $1.5 billion in 2017. Because PBMsand Part D plan sponsors are directly impacted financially by the CMS StarRating System, PBMs have in turn sought to artificially pass along performance requirementsto Pharmacy Providers.
The accurate flow of money from PBM’s to CMS acquiredthrough DIR is not clearly established in reports.Thus some important problemsassociated with DIR fees are · Misapplication of CMS based star rating system· No accurate reporting of DIR fees and repayments to CMS· Shift costs from Part D while increasing cost to Medicare for payments· PBM’s and manufacturers misusing DIR legislation to determine all drugcosts after POS· No transparency in enacting “MAC” along with DIR, whole process isambiguous· DIR fees create Financial incentive for PBM’s to increase drug prices To get a better sense of theDIR fees on independent pharmacies, NCPA surveyed 640 community pharmacists intheir article by Christine Blankv 87% of pharmacists said DIRfees significantly affect their pharmacy’s ability to provide patient care andremain in business. v 67% said that no informationis given as to how much and when DIR fees will be collected or assessed, while53% said they are assessed quarterly. Many noted this lag time makes itimpossible to determine at the time of dispensing whether the net reimbursementwill cover their costs. v While DIR fees started in theMedicare Part D program, 57% said they now appear in some commercial plans aswell.According to ananalysis by RUPRI center for Rural Health Policy analysis of 2016, DIR fees andMAC payments comprise of major problems challenging their survival. Some respondentsresponded with some data that almost 10% of their prescriptions paid by PBM’sare under their actual cost to buy and 80% are under their cost to dispense. Withlooming closure of these pharmacies, an estimated 3 million rural residents areat risk of losing the only pharmacy in their community.
For many of theseindividuals, the nearest pharmacy is over 10 miles away. Closures of ruralindependent pharmacies would significantly limit access to services for ruralresidents, especially those most vulnerable and likely to need the services. Corrective Measuresv Based on the increasingimpact of DIR Fees on consumers and providers, on September 8, 2016, the UnitedStates House of Representatives introduced the “Improving Transparency andAccuracy in Medicare Part D Spending Act” (H.R. 5951) and a companion bill inthe Senate (S. 3308), which aim to prohibit the use of retroactive DIR Fees byMedicare Part D plan sponsors and PBMs. It is evident that H.
R. 5951 and S.3308 would have a significant effect on PBM-imposed DIR Fees; however, bothbills expired with the end of the 114th Congress in 2016. v CMS Issues Report on Impactof Legitimate DIR on Medicare and Beneficiary Spending. With the nationaldebate continuing regarding not just DIR Fees clawed back from PharmacyProviders, but also the sharply rising costs of prescription drugs, on January19, 2017, CMS released a Fact Sheet entitled “Medicare Part D – Direct and IndirectRemuneration (DIR).” According toFrier Levitt law firm in their white paper on DIR fees , PBM imposed DIR fees have no proper basisin law. Other Federal laws also actas safeguards to a Pharmacy Provider’s access to, and participation in, Federalhealth care programs. These laws help curtail PBMs from wielding limitlesspower.
The Social Security Act includes the “Any Willing Provider” law(“AWPL”), which relates directly to provider access and reimbursement in theMedicare program. The AWPL applies to all Part D plan sponsors and theirdownstream entities, such as PBM’s. CMS acknowledges the importance of the AWPLin ensuring Medicare Part D beneficiaries with convenient access to life-savingmedications. As a result, CMS has vigorously enforced the requirements setforth in the AWPL and has harshly punished Part D plan sponsors who haveenacted policies and procedures in violation of its requirements. For example,CMS previously issued a $1 million civil monetary penalty against Aetna, a plansponsor, and required it to submit a corrective action plan after determiningthat “Aetna’s contracting process for CY 2015 did not comply with Part Dprogram requirements because Aetna did not permit the participation of anypharmacy that met the terms and conditions under the plan…”Thus, PBMs arenot only compelled by Federal law to allow access to providers that are willingto meet the network’s terms and conditions, but the reimbursement terms forproviders in the networks must be reasonable and relevant. DIR Fees oftenresult in Pharmacy Providers being reimbursed at rates at or below theiracquisition cost, sometimes causing them to lose money by dispensingmedications to Medicare enrollees.
As a result, DIR Fees may oftentimes be inviolation of the Federal AWPL, as they undoubtedly render many PharmacyProviders’ reimbursement rates unreasonable low.According to Joshua in Dirt on DIR, theproblem with DIR on the pharmacy level is that Part D sponsors use it not toreward high performers, but to penalize pharmacies. Even worse, many qualitymetrics used to grade pharmacies are murky, so owners and staff don’t even knowwhat they’re aiming for. Some privateinsurers, for example, use claims data as the sole basis of evaluatingadherence without even looking at medical records. Specifically, they causepharmacies to spend more on stocking and dispensing medications, so somebusinesses barely break even and others end up losing money.
Since the fees arecharged retroactively, they make it difficult for pharmacies to budget theirresources and project their future growth·