Shortly after finding yesterday’s story about Express Scripts mail faux-pas, I was alerted to another news piece from prospect.org written by David Dayen covering some of CVS-Caremark’s anti-competitive behavior. This article is worth reading as it does a good job of explaining many of the more complex and dishonest tactics a PBM uses, and it also points out some of the troublesome aspects of mergers of PBMs and insurance companies. Jump here to read more.
Month: January 2018
Re-Blog: Local pharmacies losing business from accidental third-party mailer
What happens when an industry can direct entire populations? They will eventually flex their muscle and their monopoly position. An excellent example of the unchecked-power the PBM industry has over the pharmacy industry occurred in Wisconsin recently, with a PBM sending out letters to members misleading them into switching pharmacies. One of the choices, of course, was their own mail order pharmacy.
The mailing was reportedly an error, but the impact was and is very real. The misleading letter negatively is hurting many independent pharmacies in Wisconsin.. For more, follow this link.
Monopoly and the DIR fee
Recently we rolled the dice and moved our giant capsule token in the game of Pharmopoly. We landed on Community Chest and drew the infamous:
The actual prize was several thousand dollars paid back to our pharmacy from a True-Up done to correct DIR fees withheld from our remittance back in 2015. While this is good news for our pharmacy, not everyone was as fortunate. Some pharmacies landed on Luxury Tax, others drew hospital bills. In other words, the True-Up cut both ways, with some pharmacies hit very hard. Let us take a closer look at how this DIR fee was set up and why such a contract should not be allowed by Medicare.
There are two overlapping parts to the contract: a DIR and the GER (Generic Effective Rate). The DIR fee in question dictated that the pharmacy would repay the benefit manager 50% of the ingredient cost of the drug. The GER defines the average allowable ingredient cost the pharmacy will receive over the term of the contract.
The challenge arises because the PBM does not simply adjudicate each claim using the GER as the basis for ingredient cost. Instead, ingredient cost is determined by a Maximum Allowable Cost (MAC) for the drug. The MAC for a given drug can be very different from the contracted GER. Periodically, the PBM then calculates and collects their DIR fee. This is based on the originally adjudicated ingredient cost.
Much later, the PBM will look at all claims the pharmacy has adjudicated over the course of the contract. It will then calculate the average discounted ingredient cost paid to the pharmacy and compare it to the contracted GER. From there, the PBM will either refund the difference to the pharmacy (winning 2nd place in the Beauty Contest) or collect (land on Pay Luxury Tax) the difference from the pharmacy. To better illustrate, I have adapted the following example:
Reimbursements and subsequent true-up details for two different generic drugs. These numbers are for illustrative purposes only. The contracted GER is the same for both pharmacies. The two different drugs being adjudicated have very different MAC price discounts.
|
Drug A: Drug AWP = $100 Contracted GER |
Drug B: Drug AWP = $100 Contracted GER |
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| Adjudicated MAC Price (ingredient cost) (A) | (effectively AWP-40%) |
$ 60.00 | (effectively AWP – 99%) | $ 1.00 |
| Amt of DIR collected (specified as 5% of ingredient cost) (B) | DIR | $ 3.00 | DIR | $ 0.05 |
| Amount pharmacy has been paid after DIR (Amt paid to pharmacy less DIR collected from pharmacy) (C) | Net Drug Profit |
$ 57.00 | Net Drug Profit |
$ 0.95 |
| Contracted GER (the ingredient cost pharmacy should have been paid) (D) | AWP-90% GER ingredient cost |
$ 10.00 | AWP-90% GER ingredient cost | $ 10.00 |
| Actual DIR Fee (5% of corrected ingredient cost) (E) | Correct DIR | $ 0.50 | Correct DIR | $ 0.50 |
| Amount owed to or due from the pharmacy (True-Up) | Phy owes PBM | $ 47.50 | Phy refund from PBM | $ (8.55) |
So in the case of Drug A: The PBM overpaid the pharmacy at the point of sale by $50.00 (Row A – Row D). The DIR paid by the pharmacy was therefore overpaid by $2.50 (Row B – Row E) resulting in the pharmacy owing $47.50 back to the PBM.
In the case of Drug B: The PBM underpaid the pharmacy at the point of sale by $9.00. The DIR paid by the pharmacy was therefore underpaid by $0.45 resulting in the PBM owing the pharmacy $8.55.
The key point is that the MAC price during the course of the year does not have to mirror the contracted GER.
To this I would like to add two questions:
- Why not just adjust all MAC prices to the GER up front to eliminate the need for a True-Up?
- who gains from the added complexity and obscurity?
The answer to the first question is that there is no reason that the plan and PBM could not tie their adjudicated prices to the GER instead of using nonaligned MAC prices. By adding complexity where it is not required, the PBM must gain some financial advantage. The cost of the true-up is certainly measurable and the cost would have to be offset by some other revenue. This is yet another example of the deliberate non-transparency in this industry. This is supported by an audit on about 1,000,000 claims performed by our contracting organization that resulted in them contesting the true-up.
Medicare, the very organization that allowed the creation of the DIR fee, also explicitly states that DIR fees should, whenever possible, be calculated at the point of sale. This is not a technically challenging requirement. Despite this, many PBMs have continued to maintain that the complex calculations they use for DIR fees cannot be evaluated at the point of sale, propagating the non-transparent nature of their industry.
Congress, Medicare and the leaders of the pharmacy industry need to unite to demand more transparency in the PBM industry.
Does a Pharmacist Represent the Insurance or the Patient?
I recently had a discussion with an angry patient. At the center of the interaction was the allowable day supply of one of his diabetic medications. The patient was questioning why I was only able to give them 7 vials of insulin instead of the 8 vials they wanted. To me, the answer is simple: 8 vials exceeds the allowable day supply as defined by their insurance benefit.
The patient asked me if I was taking care of him or his insurance. That is a fair question. I would always claim that I am a patient care provider first and pharmacy manager second. But limiting his medication supply based on arbitrary insurance rules does seem to contradict that assertion, given that his request was far from unreasonable.
The current healthcare system is a lot more complicated than the patient would admit. The insurance is paying for large parts of his medications, so they are entitled to have input as to the quantities they are willing to fund. And by that same argument, the patient has paid the insurance premiums for decades without utilizing the benefit significantly until now: why is the insurance unwilling to allow him a little flexibility now that he needs the care he has purchased? Complicate this with by considering that a motivated diabetic patient actively managing their disease and having adequate supplies of medication could save the insurance on claims over time, reducing healthcare expenditures and even patient premiums. This only begins to scratch the surface of the complexity!
Those of us working in health care, and being served by health care systems, are subject to an imperfect and complex system. It is important to keep an open mind and listen. This goes for both providers and patients.
During our discussion it became evident that the patient did not completely understanding the concept of day supply. He was under the assumption that the 7 vials would have to last him 90 days. I explained to him that in fact we were submitting the actual day supply the 7 vials would last. He would be able to refill the insulin as that day approached–before he would run out.
This was some consolation to the patient. Yes, they were being inconvenienced by having to come to the pharmacy more often than every 90 days, but he now understood that he would not be without his medication. The patient was still frustrated, and I believe that in his eyes I am still appeasing his insurance at his convenience and expense.
This is only one example of an underlying problem in healthcare: the lack of professional autonomy. Artificial constraints like day supply imposed on the provider completely ignore the needs and situations of the individual patient. Often they are a roadblock standing in the way of successful patient care.
If the provider does their job well, or the patient does not have any special concerns or issues, the patient is usually blissfully unaware of the complexity of the system in which they participate. Unfortunately, more and more patients are impacted by these system-imposed constraints. Our system has a long way to go to put the care back into healthcare. Our job is to do our best to care for our patients, Making Every Encounter Count.