SCPC: New Study of Medicare “DIR” Fee Legislation Helps Demonstrate PBMs as Bad Actors Across Full Spectrum of Transactions

DATE: October 3, 2017

Solutions to PBM Pricing Abuses Must Address Entire Drug Supply Chain

Washington, DC — The Senior Care Pharmacy Coalition (SCPC) today praised a new study by the Wakely Consulting Group finding the elimination of “clawbacks” Medicare Part D Prescription Drug Plans (PDPs) impose after sale to unjustifiably reduce payments to pharmacies would save the federal government $3.4 billion over ten years.  These “clawbacks” are technically known as “Direct and Indirect Remuneration” (DIR) fees.

Acting through secretive middlemen known as Pharmacy Benefits Managers (PBMs), PDPs and PBMs take back an increasingly creative array of opaque fees, charges, “incentives” and other adjustments – all after enrollees receive prescription medications, and after long term care (LTC) pharmacies provide a full array of medications, care and clinically-oriented consulting services.

The Wakely study “evaluates the impact of enacting the Improving Transparency and Accuracy in Medicare Part D Drug Spending Act (H.R. 1038/S. 413), which prohibits retroactive pharmacy payment reductions on ‘clean claims’ (those without any defect, impropriety or fraud) in Medicare Part D,” says the National Community Pharmacists Association (NCPA), which released the report.

Both Pre-Point of Sale and Post-Point of Sale PBM Transactions Require Examination

Alan G. Rosenbloom, President & CEO of SCPC — the only federal advocacy organization devoted exclusively to the interests of the nation’s LTC pharmacies and the patients they serve — praised the NCPA-released study as “representing yet another piece of the puzzle when it comes to assessing PBM activities across the full spectrum of transactions with patients, pharmacies and the Medicare program itself.” Rosenbloom noted that the study confirms that DIR fees “actually increase Medicare expenditures,” despite PBM claims to the contrary.

Rosenbloom explained that as the Wakely study focuses on legislation currently pending in Congress, “DIR fees are but one piece of the puzzle when it comes to understanding the insidious influence of PBMs as a primary causal factor in higher costs for prescription medications.” Rosenbloom recommends that policy makers consider the entire spectrum of interactions between pharmacies and PBMs — both pre-point of sale as well as post-point of sale.

PBM’s Control Increasingly Concentrated, Oligopolistic Marketplace

The process begins with annual negotiations between PBMs and pharmacies, which often occur between PBMs and pharmacy negotiating groups because PBMs “control an increasingly concentrated and oligopolistic marketplace rife with potential and actual conflicts of interest,” according to Rosenbloom.  Negotiated rates are the starting point. The Part D law allows PDPs and PBMs to change payment rates daily for thousands of medications, as long as those changes are grounded in actual and identifiable changes in market conditions.

SCPC sponsored an Avalere Health analysis of 24 million LTC pharmacy claims that begins the process of convincingly establishing that PBM-driven payment changes — pre-point of sale — are not based on identifiable changes in market conditions. “To the contrary, we believe the data demonstrates PBMs’ pricing methodology leads to arbitrary and capricious reimbursement,” Rosenbloom says of the Avalere study.

MAC Pricing: Increasing Reimbursement Inequities Between PBMs and LTC Pharmacies

Rosenbloom explained that under Medicare Part D — the largest payer for prescription medications in LTC facilities — the PBMs that administer Prescription Drug Plans (PDPs), and which often are in the same corporate family as the PDPs, use a Maximum Allowable Cost (MAC) pricing formula to establish reimbursement rates for most generic drugs independent (LTC) pharmacies dispense to elderly Medicare beneficiaries.

The Avalere review of the data between PBMs and Independent LTC pharmacies finds increasing reimbursement inequities for LTC pharmacies driven by these MAC pricing methodologies. Significantly, says Rosenbloom, the data shows MAC prices paid for the same generic drugs on the same day by different payers can vary considerably. SCPC has warned Congress and the regulatory community that this raises questions about the relationship between price variation and actual market conditions.

Yet Another Cash Grab: PBM Point-of-Sale “Fees” and “Incentives”

PDPs and PBMs also impose fees at the point-of-sale. LTC pharmacies, for example, typically pay PBMs a claims processing fee of $0.25 to $1.00 for each claim submitted for processing — although PBMs process a significant majority of claims on a “computer-to-computer” basis. No Medicare provider other than pharmacies under Part D must pay such claims processing fees, a practice which the Medicare program allows PDPs and PBMs to impose on pharmacies, but does not allow any other Medicare payer or intermediary to impose.

Rosenbloom points out that there is no justification for this fee: “PBMs can impose a claims processing fee, so they do.  These fees do not benefit consumers, beneficiaries or the Medicare program. They simply transfer money from the pharmacies that provide care and services to patients into the coffers — and the bottom lines — of PBMs and their corporate parents. Nor are DIR fees the only post-point-of-sale fees PBMs impose. PBMs are increasingly creative in finding new labels to sustain their clawbacks — quality “fees,” pay-for-performance “incentives,” and undefined acronyms used to categorize clawbacks continue to appear.

Solutions to PBM Pricing Abuses Must Address Entire Drug Supply Chain

“Any solution to PBM pricing abuses must address the entire drug supply chain — including rate formulas, daily payment adjustments, point-of-sale fees, all post-point-of-sale fees and improperly aggressive audits,” said Rosenbloom. “The overall system is like a balloon – squeeze DIR fees alone and PBMs will respond with new fees, or manipulate the formulas used to determine payments. Piecemeal fixes simply shift the problem from one part of the supply chain to the other. A comprehensive ‘full-spectrum’ solution is the only real option to helping elderly consumers deal with rising drug prices, and taxpayers deserving increased Medicare efficiencies.”

Rosenbloom, noted an update of the previously released SCPC Avalere pricing report is expected in November.

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The SCPC is the national association for independent LTC pharmacies. Our member pharmacies provide care and services to patients in LTC facilities in across the country occupying approximately 675,000 beds across the country.  Visit us at www.seniorcarepharmacies.org to learn more.