The DIR-TY Business of the PBM World

by Susan Hayes

Just when I thought PBMs could not get any worse, we read Adam Fein’s blog this morning on DIR fees (http://www.drugchannels.net/2016/11/behind-diplomat-pharmacys-plunge-primer.html).  For those of you who do not know what a DIR fee, it is a term coined by CMS for “indirect and direct remuneration (DIR).”  Initially, DIR was reported in the Prescription Drug Experience (PDE) files that PBMs sent to both Plan Sponsors under Medicare Part D and CMS.  DIR was created was created so that Plan Sponsors would not hide administrative fees in spread pricing or rebate spread.  Simply put, a Plan Sponsor could not reduce its administrative costs (which are not reimbursed by CMS) by telling its PBM to charge spread between what pharmacies were reimbursed and what the Plan Sponsor was charged instead of an administrative fee.  Any amount between what was paid (either to pharmacies or from pharmaceutical manufacturers) was deemed not reimbursable and this forced PBMs to come clean on Medicare Part D claims when spread was taken.

However, new rules now allow DIR to include reductions in reimbursement to pharmacies when pharmacies do not meet certain (and secretive) metrics.  Basically, PBM’s preferred pharmacies networks now include pharmacies that are reimbursed based on meeting key metrics, such as refill rates, generic dispensing rates, preferred product rate, audit performance/error rates and other quality measures in comparison to other pharmacies in network. If you want to read a complete primer on DIR fees, go to http://www.ncpa.co/pdf/faq-direct-indirect-remuneration-fees.pdf.  And for a counter argument read, www.pcmanet.org.

The problem is this:  DIR has evolved into punishment schemes that increase PBM profit, not a reward pharmacies for good behavior.  Pharmacies set reimbursement rates with PBMs.  Then, six to nine months after the claim is adjudicated, the PBM takes back the reimbursements it promised to pharmacies, saying the pharmacy didn’t meet the metric.  And the pharmacy has limited or no power to challenge the PBM’s “ruling” but has to “take” the reduction in reimbursement.

Starting in 2016, CMS intends to require that Part D sponsors report these price concessions in two new fields on the Summary DIR report, Preferred Pharmacy Price Concessions and non-Preferred Pharmacy Price Concessions.  In the same letter, CMS expects that most of the DIR fees can be calculated at point of sale and therefore should be reported at point of sale.  According to CMS, key metrics that are reportable include those “based on generic utilization, pharmacy market share, pharmacy network size, or other metric.”  See http://www.drugchannelsinstitute.com/files/CY16_DIR_price%20concessions.pdf for the entire letter from Cheri Rice, Director Medicare Plan Payment Group to all Plan D Sponsors.

But PBMs complain that these metrics cannot be measured at point of sale, even though CMS has told PBMs that it is reasonable to measure these key metrics at point of sale.  If these fees are deducted at point of sale, two things happen:  the PBM’s pricing (net the reduction in “pay to play fees”) are exposed to patients and pharmacies would know exactly what they are getting reimbursed.  That, in turn, would allow pharmacies to realize when they are dispensing medication at a loss.

Whether the cost of the drug includes ANY DIR is really important.  CMS defines (in the same letter referenced above) the cost that is to be paid by the beneficiary at the point of sale to be what is reimbursed to the pharmacy.  By not taking into consideration the ultimate reimbursement to the pharmacy, after retrospectively calculated DIR “performance” fees (which are really reductions), beneficiaries pay more for the cost of the drug that what the pharmacy is reimbursed.  And that is against CMS regulations.  Read 42 CFR 423.100 (https://www.law.cornell.edu/cfr/text/42/423.100).

Normally, we spend time in the employer market.  These “pay to play” networks are now seeping over to the commercial market.  According to NCPA, “The use of DIR fees initially started in Medicare Part D but are now being extended into commercial network arrangements—often under different names.”

As a criminologist, unfairly reducing reimbursement to pharmacies and providing no ability to control the metric incents bad and potentially fraudulent behavior.  Should we really expect pharmacists to come home with us when we fill our prescriptions and remind us to refill when we are seven days from the end of the prescription, like the mother we never had or wanted?  Instead, pharmacist will be tempted to refill (via phantom prescriptions), bill Medicare and commercial plan for these “refills,” just to get the “metric up” to meet some goal set by some PBM executive.  And what about specialty vendors, like the Adam Fein’s blog on Diplomat, that has no ability to switch drugs to generics? Should Diplomat be penalized $8.5 million for behavior they cannot control?

CMS needs to realize that people that take prescription drugs are grown-ups, especially people over age 65.  We do not need our PBM surrogate mothers telling us when to refill or to ask for a generic and we want our local pharmacists fairly reimbursed and not committing fraud to meet some metric set out by some geek. And patients want the lowest price…is that so hard for CMS to understand and enforce?

Adam Fein and I do not agree on everything.  But it is clear that CMS has gone off the rails and let the PBMs once again take control of the train.  As Dr. Fein concluded, “FAIR OR DIR-TY?”   I am sure that was just a rhetorical question.