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How Medicare Could Save $3.4 Billion a Year

Friday November 10th, 2017   •   Posted by Craig Eyermann at 5:06am PST   •  

It’s no surprise that the U.S. federal government does lots of stupid things. Sometimes, those things are meant to save money but, surprise surprise, those things really do the opposite and drive up costs instead.

A good example of this unintended effect can be found in Medicare’s Direct and Indirect Remuneration (DIR) fees on medications sold through pharmacies. Blair Thielemier of Pharmacy Times reports on what those fees are and how they affect Pharmacy Benefit Mangers (PBM):

The Centers for Medicare and Medicaid Services (CMS) created DIR fees as a way to track the annual amount of drug manufacturer rebates and other price adjustments applied to prescription drug plans impacting the total cost of Medicare Part D medications. The savings from rebates received by the PBM are passed on to the payer, which in this case is CMS.

DIR fees morphed from the original definition of DIR to a myriad of meanings, including the cost a pharmacy pays to participate in a PBM/plan’s network, the adjustment of the maximum allowable cost (MAC) and the contracted rate the plan reimburses the pharmacy for a medication, and the reimbursement or fee to a pharmacy for meeting or failing to meet certain quality measures.

It appears the original intention of DIR fees was to pass rebate savings from a PBM to Medicare; however, DIR fees are also fees a pharmacy pays a PBM for a network application or for filling a prescription. Although these fees have a place, the terms of DIR fees between pharmacies and PBMs are often cloaked in vague references. It can be difficult for the pharmacy to know how much the PBM/plan will reimburse the pharmacy for a prescription when the pharmacy enters into a contract, when the claim is processed, and when the contract ends.

That vagueness has proven to be costly, because in the interest of saving money, Medicare will claw back those fees from pharmacists months after the original point-of-sale transactions have occurred, where to compensate for the uncertainty for how much will be clawed back and the timing of when it will be clawed back, many pharmacists who operate their businesses on low margins are forced to raise the prices of prescription medication to Medicare consumers.

Writing at RealClearHealth, B. Douglas Hoey, the CEO of the National Community Pharmacists Association, describes the costly impact.

Retroactive DIR fees hurt our nation’s 22,000 independent pharmacies – small businesses that operate on razor-thin margins – by unexpectedly clawing back a portion of the price of a drug often months after a transaction, sometimes leaving the pharmacy upside down on the transaction. That’s no way to operate a business, and it hurts community pharmacies every day.

But pharmacies aren’t the only ones hurt. Our patients suffer too, and so does the Medicare program – and the American taxpayer. These after-the-fact fees lead directly to inflated prescription costs and higher cost-sharing for our Medicare patients because the higher costs drive many patients into the Medicare coverage gap faster. That’s what the Wakely research shows, as well as a January 2017 analysis by the Centers for Medicare & Medicaid Services that said DIR fees on pharmacies do not reduce the cost of drugs for beneficiaries at the point of sale and in fact push seniors into the “donut hole” coverage gap and, subsequently, the catastrophic phase of the Part D benefit faster.

There is legislation pending before the U.S. Congress that could repair the wasteful damage that Medicare is doing in its pursuit of cost savings through its clawback program. Hoey describes the findings of research that his organization funded to determine what benefits might be realized by the passage of the Improving Transparency and Accuracy in Medicare Part D Drug Spending Act (S. 413 / H.R. 1038) bill now pending in the U.S. Congress.

We have new research — commissioned by the National Community Pharmacists Association (NCPA) and prepared by Wakely Consulting Group, one of the top actuarial firms in the country — that establishes a private score for this legislation, estimating how much it will cost or save the federal government. Obviously, knowing that score is often essential to whether a piece of legislation will advance in Congress. Bills with significant price tags almost always have a tougher go of it.

But for the pharmacy DIR bill, the news is a real game-changer. The Wakely research shows that eliminating retroactive pharmacy payment reductions — or post point-of-sale pharmacy “DIR fees” — in Medicare Part D would save the federal government $3.4 billion over 10 years.

No, that’s not a typo. It really is billion with a “B.” Even when it comes to government spending, that’s a lot of money. Perhaps more importantly, the Wakely study shows that DIR legislation will result in extraordinary taxpayer savings without subtracting any benefits seniors currently receive. And for community pharmacies, banning these after-the-fact fees is the fair way to achieve predictability in reimbursements for the medications pharmacists buy and dispense.

Hoey’s organization obviously has an interest in the passage of the legislation, where what we’d really like to see is an independent confirmation of the actuarial research findings to confirm the potential benefit.

If those findings hold, the legislation should be a no-brainer for passage, where the reform it promises can reduce health care costs for consumers while also eliminating uncertainty for pharmacies, where everybody wins because the government stops doing stupid things.

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November 2017