In Blow to PBMs, CMS Floats Reform of Part D Price Concessions

As part of a sweeping new Medicare Advantage rule, CMS recently proposed a policy aimed at reforming a reimbursement system that local pharmacies have long claimed is straining them to the breaking point. PBMs, on the other hand, argue that the proposal could hamper value-based contracting in Part D and potentially increase Medicare spending.

At issue are arrangements in which Part D plan sponsors can recoup money from pharmacies for dispensed drugs if the pharmacies do not meet certain metrics. Generally speaking, these payments to plan sponsors are known as price concessions, and when assessed retrospectively — as they currently are — they are counted as direct and indirect remuneration (DIR).

“The thing that’s critical to know about DIR is if a price concession…is considered DIR, it is a price concession that the plan sponsor uses to directly lower their bids and lower their premiums, so plan sponsors have a huge incentive to collect as much DIR as possible, because it’s a direct contributor towards lower premiums, and we know that in Part D, premium is king,” explains Ryan Urgo, managing director of health policy at Avalere Health.

Such price concessions are problematic for pharmacies because they are assessed retrospectively, “and they are also based upon performance metrics and various quality measures that are somewhat ambiguous,” Urgo says. Thus, the actual amount that’s owed to PBMs/plan sponsors “is unknowable to pharmacies at the point of sale,” he adds. This in turn “creates unpredictability, it creates cash flow problems, and for some of your smaller community pharmacies, higher and higher DIR fee liability has actually compelled some of them to close their doors.”

Lindsay Bealor Greenleaf, vice president of policy at ADVI Health, says CMS’s proposal is “a bit of a welcomed surprise considering PBM reforms have not been a focus of the Biden administration.”

The attempt to revamp pharmacy price concessions also “reflects that the egregious growth of these PBM fees makes them impossible to ignore,” she tells AIS Health, a division of MMIT. Indeed, CMS noted in its proposed rule that pharmacy price concessions grew more than 107,400% between 2010 and 2020.

“These fees benefit PBMs at the expense of patients and pharmacies. Patients have faced high cost sharing based on undiscounted prices, while pharmacies are hit with huge unpredictable retroactive fees that penalize them for failing to meet measures that are often irrelevant to them,” Greenleaf says. “Oncology practices that dispense medications are frequently hit with fees because the PBMs say they haven’t met certain measures that are completely inapplicable to cancer care, like management of diabetes and cholesterol.”

But with its proposal — part of the CY 2023 Medicare Advantage and Part D Proposed Rule — CMS seeks to require Part D plan sponsors to apply all price concessions they receive from network pharmacies at the point of sale. That effectively moves the price concessions that pharmacies could owe “out of the DIR column” and into the negotiated price of any given drug, Urgo tells AIS Health.

“This will serve the important goal of making that final reimbursement amount knowable to the pharmacy, and importantly, because you’re applying those price concessions to the negotiated price at the point of sale, the beneficiary’s coinsurance will now be based off of a lower price, so there’s going to be savings to the patient in out-of-pocket [costs],” he says.

Trump Admin Also Considered Policy

This is not the first time that CMS has floated such an idea, as the Trump administration said in rules proposed in 2017 and 2018 that it was considering reforming pharmacy price concessions. However, such a provision never made it into a final regulation.

Pharmacies praised CMS’s new proposed rule, with the National Association of Community Pharmacists (NCPA) pointing out that it had been asking for such a change for a while.

“This is an encouraging development. We are grateful to HHS Secretary Becerra and CMS Administrator Brooks-LaSure for this proposal. After many years and multiple administrations, this is as close as we’ve ever come to reforming pharmacy DIR fees. We look forward to working with all our partners, members, and champions in Congress to ensure the best possible rule is finalized for plan year 2023,” NCPA CEO B. Douglas Hoey wrote in a Jan. 6 statement.

“Pharmacy DIR fees are forcing many pharmacies to reduce services, and others to close their doors — at a time when pharmacist services have proven they are essential to the health of the country,” Hoey added, noting that since the start of the COVID-19 pandemic, pharmacists have delivered 200 million vaccine doses.

Urgo, however, contends that the proposed policy change may not be a complete win for the pharmacy sector.

“In an ideal world, I think they’d like to see reform of the performance and quality metrics that plans are negotiating into their agreements, because that drives down the total reimbursement amount,” he says. “That’s the other side of this coin that I suspect that the pharmacy industry will want to pursue. But this certainly introduces quite a bit of predictability into the process for them, so while there could still be a ‘clawback payment,’ it addresses the central challenge associated with those payments.”

PCMA Denounces Concession Proposal

To the Pharmaceutical Care Management Association (PCMA), the Biden administration’s proposal misses the mark.

“We are currently reviewing the proposed rule. However, previous point-of-sale proposals in Medicare have not advanced because they would significantly increase Medicare spending,” JC Scott, president and CEO of the PBM trade group, said in a statement. He was likely alluding to a never-implemented Trump administration-era rule — set to be fully repealed if the Build Back Better Act passes — that would have required Part D plans to apply rebates they negotiate with drug manufacturers to the price consumers pay for medicines at the point of sale. The rule was subject to implementation delays amid a lawsuit filed by PCMA, and it landed on the chopping block after various official estimates predicted it would increase Medicare spending.

Will Policy Share Rebate Rule’s Fate?

Yet Urgo says there are reasons to believe that the pharmacy price concessions proposal may not run into the same issues as the Part D rebate rule.

“Pharmacy DIR is the fastest growing segment of DIR in recent years, but overall it still constitutes a low percentage of overall DIR collected. Probably in the neighborhood of 15-20% of all DIR is pharmacy DIR, and the remainder is through manufacturer rebates,” he tells AIS Health. “So to the extent that there is an upward premium effect to this policy, it will be substantially less than what the rebate rule would have driven, and so it may be easier for this policy to not meet the same fate that the rebate rule is seemingly going to meet.”

“That being said, I don’t think it’s a sure thing because you still will have a premium component to this that does resonate,” Urgo adds.

In his statement, PCMA’s Scott also argued that “pharmacy DIR represents value-based contracting in Medicare Part D and is designed to improve pharmacy quality and safety for beneficiaries. We look forward to working with CMS on ways to enhance the use of value-based contracting rather than limiting this important tool.”

Urgo says that in general, it’s clear why CMS’s new proposal is not PBM friendly. “It doesn’t specifically limit their ability to do a value-based agreement with a pharmacy,” but it does take away PBMs’ ability to have all of the price concessions flowing from those agreements to be booked as DIR, “which means that they no longer receive any of the premium-lowering effects associated with these price concessions,” he says.

“In essence, you’re now getting a lower negotiated price at the point of sale for beneficiaries…and what plans and PBMs will argue is that comes at the expense of less DIR for them overall and upward pressure on premiums. And given how premium-sensitive the Part D market is, plans are loath to support any policy that could limit DIR.”

There is one potential bright side for plans and PBMs, though. For the Part D coverage gap, CMS says it wants to allow plan sponsors to choose whether to allow retrospective price concessions to be incorporated into the negotiated price or booked as DIR, Urgo says. That could theoretically lead to two negotiated price definitions — one for drugs outside of the coverage gap and another for applicable drugs inside of the coverage gap — and it could be an attempt by the administration to minimize the budgetary impact of its proposal, he suggests.

“I suspect that omission, if you will, is something that pharmacies will not be pleased with,” Urgo says. “I would expect them to want to see a consistent application of this pharmacy DIR policy across all phases of the Part D benefit.”

Drug manufacturers, meanwhile, generally like the idea of DIR reform and having price concessions applied to negotiated prices. Like the rebate rule, CMS’s new proposal also promises to “create a baby step towards rebate reform, which is an important goal for the industry, regardless of the fate of the safe-harbor rule,” Urgo says. “However, manufacturers should be looking very closely at this proposed policy loophole in the coverage gap.”

Contact Urgo at rurgo@avalere.com and Greenleaf via Lauren Pickett at lauren.pickett@pinkston.co.

This story was reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.

Leslie Small

Leslie Small

Leslie has been reporting and editing in various journalism roles for nearly a decade. Most recently, she was the senior editor of FierceHealthPayer, an e-newsletter covering the health insurance industry. A graduate of Penn State University, she previously served in editing roles at newspapers in Pennsylvania, Virginia and Colorado.

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