The Centers for Medicare & Medicaid Services (CMS) has released “Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses,” a proposed rule to amend the Prescription Drug Benefit Program (Part D) regulations to support health and drug plans’ negotiation for lower drug prices and reduce out-of-pocket costs for enrollees. One important component is a proposal to change the definition of “negotiated price.” Currently, the term must include all pharmacy price concessions except those contingent amounts that cannot be “reasonably determined” at the point of sale. This small exception is what has led PBMs to manipulate Medicare bidding and to the explosion of DIR Fees in the pharmacy space.
CMS is proposing a change to the definition of “negotiated price” to eliminate this exception and instead adopt a new definition were the term would mean the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D plan sponsor or the sponsor’s PBM.
Independent pharmacies, especially those dispensing high-cost medication such as specialty pharmacies, have paid substantial money back to PBMs and plan sponsors in the form of percentage-based DIR Fees. The government has only now begun to analyze the impact that DIR fees have had on the Medicare Part D marketplace, including pharmacies, Medicare beneficiaries and the Government. CMS is ready to change regulations that have created PBM and plan sponsors’ incentives that have “distorted” CMS’s intentions and original definition of “negotiated price.” CMS is asking for stakeholders to comment by January 25, 2019 on the proposed rule changes. The proposed changes could remove these distorted incentives and undue some of the negative consequences that have been caused by DIR Fees. This potential impact is highlighted by some of CMS’ own commentary in its proposed rule, including:
- DIR fees “[p]erformance-based pharmacy price concessions, net of all pharmacy incentive payments, increase, on average, nearly 225 percent per year between 2012 and 2017 and now comprise the second largest category of DIR received by sponsors and PBMs, behind only manufacturer rebates.”
- Less than 1 percent of plans have passed through any price concessions to beneficiaries at the point of sale.
- “When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug.”
- “[P]harmacy price concession applied as DIR can lower plan premiums and increase plan revenues, result in cost-shifting to beneficiaries and the government, and reduce consumer and government knowledge about the true costs of prescription drugs.”
- If a Part D plan sponsor’s actual drug costs are within +/- 5 percent of the drug costs estimated in its bid, the plan assumes all of the risk or reward. CMS’s own analysis show “that in recent years the DIR amounts that Part D sponsors and their PBMs actually receive have consistently exceeded bid-projected amounts, by as much as three percent as a share of gross drug costs.” The three percent increase in estimated DIR revenue is kept 100% by Part D plan sponsors without the requirement to pass any of that “savings” to the government, beneficiaries or health care providers such as the pharmacies that acquire and dispense the medication in accordance with prescriber instructions.
Why You Should Comment:
Opportunities to comment directly on DIR are rare. Last year, CMS issued a Medicare Part D Final Rule and declined to discuss DIR. Providers are in danger of closing or are being forced to drastically alter their business models. CMS has stated in this proposal that the current application of DIR by PBMs was an unintended consequence.
Frier Levitt Government Affairs (FLGA) helps pharmacy industry stakeholders, including independent pharmacies, specialty pharmacies, state and national pharmacy associations, and in-office dispensers, comment on proposed regulations. FLGA understands the nuances around DIR fees and has strategies that can help successfully communicate pharmacy stakeholders’ positions on DIR Fees and other issues to CMS.
The deadline to submit Comments is January 25, 2019, so it is important that you contact Frier Levitt Government Affairs today to make sure your voice is heard.