Category: Business

DIR Fees–Why Are Pharmacies in the Middle?

DIR fees are a hot button item for many pharmacies and pharmacy owners. These fees are not well understood and their impact on the health of pharmacy as a profession is significant. Recent conversation with both our PSAO and (surprisingly) representatives from a major PBM have me questioning why pharmacies are even being involved with DIR fees.

Medicare created the concept of the DIR fee as a way to capture rebates that PBMs were receiving from pharmaceutical manufacturers. The DIR fees are not kept by the PBM, but instead are passed back as a savings to the payor (in this case, Medicare). The format of these fees, however, involves not just the PBM and Medicare. Pharmacies have been dragged into the equation, and the equations are complicated. Trying to understand the logic behind a DIR fee and how it is calculated has become very challenging.

I have been told that Medicare would prefer that DIR fees not come thru pharmacies, but they do not enforce this, allowing PBMs to create complicated logic on how these savings are directed back to the payor (Medicare). In their simplest form, a DIR fee is calculated in one of two different ways:

  • A flat fee per claim (say $3)
  • A flat percentage (say 3%)

If a contract without DIR fees read Average Wholesale Price (AWP) – 18% + dispensing fee, the DIR contract would read AWP – 15% + dispensing fee. The DIR fee would be the difference between the first and second calculation. This seems simple enough, but many pharmacists are still scratching their heads, you would not be alone. The use of MAC prices hides the AWP logic completely from the pharmacy. Remember that the PBM industry does not publish how it calculates MAC rates, and retains the right to change these rates at any time for any reason.

Example DIR fees from a Medicare Part D PDP

Consider a generic drug claim and the AWP for the 90 day supply of the medication is $100. The plan will typically invoke a MAC rate for this drug. MAC rates have been estimated by some PSAO’s as averaging about AWP – 79% across the industry. Given this estimate of MAC, the claim would adjudicate at $21 plus a dispensing fee (which is almost universally trivial, often $1 or less).

At the end of the month, the PBM would then apply the DIR fee schedule to this claim. If the DIR schedule for generic drugs was agreed to be AWP – 84.5%, an the pharmacy would have an additional 5.5% withheld from its payment as a DIR fee for this prescription. As an aside, it is possible that the DIR could be negative if the MAC price is actually below AWP – 84.5%, and in this case, the pharmacy would receive credit in the form of a DIR. This may have the potential protect pharmacies from some overly aggressive MAC prices, though the significance of this unknown.

It is important to recognize that the basis of the MAC price is unknown to the pharmacy, so in order to know what it actually made at the point of sale, the pharmacy would have to be able to identify each DIR eligible claim and apply a corrected calculation to the sale in the ledger each time.

Another problem with this methodology is that nowhere in those calculations is the ACTUAL COST of the medication considered. With an effective generic discount rate of AWP – 84.5% many pharmacies are seeing over a third of prescriptions being reimbursed underwater after the DIR is taken into consideration at the end of the month. This is primarily on generic drug products, but the same thing also occurs with some brand name drugs.

When a pharmacy or PSAO evaluates a narrow network / preferred provider plan, they need to be able to assess the impact of the overall contract on both. Given the above logic, this is certainly possible, though challenging (because MAC price is not explicitly defined). To make matters more complicated, plans are calculating DIR fees retroactively. In other words, the DIR fees for January are being assessed in February. Not complicated enough? Some plans document retroactive DIR payments by attaching the DIR to a different prescription and fill date in the current remittance document for the DIR being charged for another prescription filled during the previous remittance period. Think about this for a moment. There is no way for the pharmacy to double check the DIR calculation because the prescription it is attached to is not actually the prescription that the DIR fee represents. Pharmacies now have to simply trust that the DIR fees being levied are accurate. In our case, DIR fees for one plan are easily exceeding $5000 every month. This is not inconsequential and is having significant implications to the bottom line for the pharmacy.

Pharmacy Should Not be in the Middle

In the end, it makes no sense to include pharmacies in DIR calculations. Pharmacies are providers. They are not in the middle like the PBM. If savings are to be passed on to the payor (Medicare) then they should be transparent. They should not involve the pharmacy at all. The pharmacy should expect to be paid the adjudicated amount, and that amount should be specified directly in the contract. Anything else infers that he PBM is trying to hide something in the shell game of transactions.

 

SuperSync: the Super Hero of Adherence

To say that Medication Adherence is a hot topic in many pharmacies is an understatement. With the Proportion of Days Covered (PDC) being the focus of three of the five CMS performance measures for pharmacy, medication synchronization services are being adopted by many pharmacies. Synchronization is one strategy to improve patient compliance, making it less likely that the patient runs out of medication.

At our pharmacy, the synchronization is often referred to “not-so-simplify my meds” because of all of the details that have to be managed by the pharmacy to successfully synchronize, and maintain synchronization, of a patient’s medications. Companies like Prescribe Wellness, and Ateb (and others) offer cloud based software solutions to help pharmacies manage what turns out to be this less than trivial task.

But synchronization only address one aspect of patient compliance by making it less likely that the patient will be without one or more medications. The patient still has to remember to follow their mediation regimen, and sometimes this obstacle is daunting. Pharmacist can coach patients to improve their compliance or even suggest changes of therapy to the prescriber to simplify the patient’s medication regimen (e.g. changing a person from simvastatin, that has to be taken in the evening, to atorvastatin, that can be taken with the rest of the patient’s medications). When these types of interventions steps fail to improve a patient’s compliance, however, it is time to call in a super hero: SuperSync.

Med Planners

One of the best ways to help a patient take their medications correctly is the make the job of taking the medications less burdensome. An easy way of doing this is to recommend the use of a medication planner. Filling a planner, however, is a fairly tedious process for some patients. The pharmacy can assist (though it does need to abide by state and federal regulations with respect to labeling if applicable). Depending on how this service is managed, it is even possible for the pharmacy to charge a fee for this service.

SuperSync: Synchronization plus Packaging

One novel way to approach medication packaging for the synchronized patient is to do away with the prescription vial entirely. Packaging systems like the Parata Pass system create a prepackaged, commingled, multi-dose strip package with each day and time divided into a perforated strip of bags. The patient’s next doses are always the next bag on the strip.

Methods like this work very well in combination with medication synchronization. The patient’s medication are simply entered in the pharmacy management software and sent to the robot for packaging. The pharmacy trades vials, caps and labels for the disposables used by the packaging system.

Cost Analysis

One significant question, however, is if a program like this will save a pharmacy money, or cost them more in time and materials. The analysis below represents reasonable approximations to the cost of this type of program.

Traditional Prescriptions

The cost of a typical prescription vial with a lid varies by size, with the more common small 8 dram vials / lid costing roughly $0.25 each. Larger vials can cost upwards of $1.00, though these are much less commonly used in most pharmacies. Label costs add about $0.02 to $0.08 each, depending on stock and size of the order. Overall, each prescription filled costs the pharmacy about $0.30.

Disposable Costs: Traditional
Approximate monthly cost for vials, lids and labels for patients receiving 6 to 12 chronic medications.

The cost per month for vials, lids and labels, given a typical patient being synchronized in our pharmacy is about $3 per month.  When dispensing 90 day supplies, the cost per month is reduced only marginally, as the more of the larger vials are required, adding expense.

Strip Packaging (commingled)

The primary costs associated with this method are packaging paper (the cellophane that becomes the bag) and the ribbon (which creates the printing on the package). The cost of the robotic equipment is not being included in this discussion in a similar way that labor costs were not included in the cost analysis of a traditional prescription. The per-bag cost for a strip-package is about $0.021 (the decimal is important as there will be numerous bag in any given order).

The number of bags in an order will depend on the number of medications, and the number of times each day a patient takes a medication, and the number of days being packaged. Each bag is capable of holding up to four different medications (this is a practical limitation based on the size of print and the amount of information that has to be included on each bag per pharmacy labeling regulations) and seven tablets/capsules (this being limited by the volume each bag can contain).

Strip package costs.
Monthly cost of cellophane bag stock and ribbon based on the total number of bags required per day.

Because each bag can hold any combination of 4 medications and 7 tablets / capsules, the typical day will include 1 to 4 bags. For example, a patient taking 6 medications (representing 7 tablets), all in the morning, would require 2 bags per day to allow for the printed requirements to fit on the packaging. If one of those medications were twice a day, they would require 3 bags per day. Patients with medications taken three or four times a day will have as many as eight bags a day. This means that the average cost to the pharmacy in disposable overhead is about on par with traditional prescription vial based packaging for most patient needs.

Kryptonite for SuperSync

The biggest disadvantage to a packaging system like the Parata Pass being married to a synchronization program is the potential for therapy changes. If a patient has a medication change, the entire strip is potentially rendered incorrect. It would need to be re-packaged, adding additional costs in labor and overhead. It is important to keep this in mind when selecting patients for a SuperSync type program. Policies and procedures also have to be developed to handle this type of change, as even the most stable patient can have a change that effects their meds when they are packaged in this manner.

Workflow and Equipment

The two biggest challenges with using a SuperSync process are:

  1. Purchasing the equipment and
  2. creating a workflow that is efficient and seamless.

Equipment like the Parata Pass are capital purchases involving many tens of thousands of dollars both in up front costs and reoccurring maintenance fees. Traditionally, this type of packaging has been used mostly in nursing home type pharmacies. The congruence of packaging and synchronization, however, makes it appealing for retail pharmacies as well. I am aware of more than a few pharmacy practices that are adopting this type of packaging for all of their ambulatory patients. Workflows that leverage both synchronization and robotics like the Parata Pass have the potential be extremely efficient.

Tie-Ins and Prescripton Drugs

Pharmacies are being paid less and less for prescription drugs, and adequate reimbursement for clinical services is still not a reality. At the same time, pharmacies are being evaluated on performance, and this requires investments in the practice. Keeping the bottom line balanced means that today’s pharmacy owner needs to maximize efficiency in their pharmacy department and find new revenue streams to help fill the widening gap between overhead and drug product reimbursement until reimbursement for services can add significantly to the bottom line.

Chain drug stores rely on extensive front ends to buoy pharmacy department sales. Independent pharmacies often cannot leverage an extensive front end in the same manner. This does not mean, however, that the independent pharmacy cannot use their front end to support their overhead during this paradigm changes in pharmacy.

Don’t try to beat the Big W

Over the years, I have emphasized that the chain pharmacies around me are not my competition. They do things in ways we would never consider. Conversely, they do not generally have the flexibility and latitude to attempt things an independent pharmacy could try. So, when selecting products for the the front end (over the counter) section of the pharmacy, it is always a good idea to strive to find products that the chain pharmacies not or cannot stock. Quality merchandise is also something that will set an independent apart from a retail chain pharmacy. The trick, however, is to jump-start the sales of these products.

While an independent pharmacy might shy away from mass market merchandise, there is no reason that the independent cannot look at some of the common retail strategies used by the chain drug stores. Of specific interest today is the use of tie-ins at the point of sale. Tie-ins are those items hanging next to the thing you were looking for. In a grocery store, grated Parmesan cheese might be hanging on the shelf right next to the spaghetti sauce. If you are looking for one, you are more likely to impulse purchase the other.

The Prescription Tie-In

An independent pharmacy can take this strategy and really make it shine by integrating the pharmacists clinical knowledge during the final verification phase of each prescription checked in the pharmacy. Many drugs either are dependent upon, or deplete specific vitamins / minerals or other nutrients from the body. These nutrients can become tie-in marketing opportunities for the pharmacy. While this is not a new strategy, this strategy can be optimized and made successful with a little advance planning. The result can be a significant boost to revenue to help offset the decreases seen with prescription drugs.

Examples of possible tie-ins might include:

  • Recommending a Coenzyme Q10 supplement for patients taking HMG Co-A inhibitor (e.g. atorvastatin, lovastatin, pravastatin etc).
  • Recommending a pro-biotic to patients taking a broad spectrum antibiotic
  • Recommending a vitamin and mineral supplement to patients taking diuretics

Strategies

  • Be selective: choose a product line that is unlikely to be stocked by , or unavailable at chain stores. This might be a premium brand with a high quality standard.
  • Start Simple: There are dozens of classes of medications that have potential tie-ins for supplement sales. Rather than overwhelm the pharmacy staff and the patients, start with a few select classes and grow the program from there
  • Think Clinically: While there are dozens of class of medications with potential tie-ins for supplement sales, some of these are better documented than others.
  • Research before you sell: Be sure you understand the mechanisms and pathways. Having this knowledge helps earn the patient trust and understand that you are providing more than just product, but knowledge.
  • Train your staff: Be sure that all of your staff understand what the program is and how it is going to be executed. Be sure that the pharmacists are familiar with the research done above.
  • Document: If a patient is flagged for consultation about their medication and, after considering the pharmacist’s rational for the recommendation to purchase a supplement, the patient declines, document the outcome.
  • Plan follow-up: Do not flag the same patient for consultation and recommendation of a supplement every time they come into the store. Remember that this is a professional consultation. Instead, document the outcome in a manner that all pharmacy staff will know when the consultation was made, the patient’s response, and when to follow-up (e.g. approach patient in 6 months to re-visit the topic)

Our pharmacy is beginning the implementation of this type of program. We have chosen Ortho Molecular Products as our “premium” brand of supplement. One advantage for choosing Ortho Molecular is their “Pharmace Replete” program designed to help tie-in sales. This includes materials that my be helpful to a pharmacy wanting to implement this type of program.

Examining Medicare Part D Transparency

Pharmacy as a profession has suffered over the last 10 years. Downward pressure on reimbursement for drug product, combined with a dearth of payment to pharmacies for professional services has led to the closing of hundreds of pharmacies over the past years. The economic pressure being excerpted on pharmacies is leading to the adoption of what we have dubbed “the Stripped Down Model” of pharmacy.

The concept of the PBM originally started as a service to act as an intermediary between pharmacies and the insurance payor, facilitating the processing claims. Today, the PBM industry sells a “network” to insurers, giving their patients access to pharmacies. The PBMs have expanded their services to include formulary management and other services purported to help contain costs for the payor. When the Medicare Part D benefit rolled out, Medicare entrusted this benefit to the PBMs to run, and by and in large, legislators believe that Medicare Part D is a success story.

Pharmacists, however, generally have a different, more negative, view of the PBM. At the same time as pharmacies have struggled, Pharmacy Benefit Managers have regularly reported record profits. Pharmacists, those in the trenches working with patients, are concerned with the amount of money being spent by Medicare on the “middle man” PBM industry. For the most part, the “spread” between what the PBM pays the pharmacy for drug product and what the PBM in turn charges the payor is concealed. There is little transparency in the PBM industry to date. From a pharmacy perspective, pharmacists generally wonder just how much of a success Medicare Part D would be if there were more transparency.

Recently, the Centers for Medicare Services (CMS) released detailed information on prescription drug spending for the 2013. The press release (including some interesting summary data) is available here, and for those with a thirst for raw data, the details are available  here. This data is reportedly some of the most comprehensive data released by CMS to date, and it offers significant insights into the Medicare Part D benefit.

As a pharmacist and pharmacy owner, two tables from the press release immediately struck a chord with me. These tables have been copied from the CMS press release and reproduced below:

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Given that the tables report Total Drug Cost and Total Claim Count, it is possible to calculate the average cost per prescription to Medicare for any of the drugs in the tables above. This, combined with estimates of pharmacy reimbursement for the same drugs will give insight into the amount being retained (sometimes called the “spread”) by the Pharmacy Benefit Managers (PBMs) charged with administration of Medicare Part D.

Assumptions

Keep in mind that the lack of transparency with the data still limits firm conclusions from being made. For example, the proportion of 30 day to 90 day fills for any given drug is not known. Likewise, the tables above do not differentiate different strengths of a drug, lumping all strengths together. On the pharmacy side, the cost of goods will vary some from pharmacy to pharmacy and region to region. The cost and profit data being presented below is assumed representative, understanding that the while the data was pulled from a specific demographic region and patient population, it is likely in general agreement with national data.

Methods

For each drug in Table 1a and Table 1b, Medicare Cost/Claim was calculated by dividing the Medicare total drug cost by the Medicare total claim count. The result is an aggregate value, representing all possible day-supply and strength combinations.

For the same drugs and time period reported by Medicare, prescription claims for Part D plans for a midsize independent pharmacy were examined, and the Pharmacy Reimbursement (also known as the adjudicated amount) and cost basis of the drug product were extracted. From these values, the following were calculated:

  •  Cost/Claim minus Pharmacy Reimbursement = PBM Spread
  • Pharmacy Reimbursement minus cost basis = Pharmacy profit

Transparency Approximated

Generic Drug Summary with Profit
Estimated Pharmacy Profit and PBM Spread for the Top 10 Generic Drugs in 2013

Brand Transparency
Estimated Pharmacy Profit and PBM Spread for the Top 10 (Brand Name) Drugs by total cost for 2013

Discussion

Generic Drug Profit and Spread

The pharmacy data represented above appears to agree with the CMS data well. While the pharmacy data set size is only a small fraction of the CMS data set size, each drug is represented by more than 500 claims, with most drugs represented by more than 1000 claims. The average pharmacy profit for these 10 drugs during 2013 was just over $6.50, and this appears to be in line with anecdotal reports of prescription profit during 2013. It is interesting to note that if the estimate of pharmacy reimbursement is reasonably close to the average across the United States, the PBM is taking roughly half as much as the pharmacy makes for each prescription. Keep in mind that the PBM does not need to maintain drug inventory, and has almost no patient care expenses to cover. The average estimate of more than $3.50 per generic prescription being paid to the PBM begs the question “what value is being received for the money being paid to the PBM?”

Top 10 (Brand Name) Drug Profit ant the Spread

Unlike the generic data, there are some obvious difficulties with the Brand Name data set. The amount of reimbursement exceeded the total adjudicated amount for one drug. This problem is likely attributed to how certain brand name drugs are priced. Crestor and Junivia, for example, cost pharmacies about the same amount per tablet regardless of the strength being dispensed. Other drugs, like Abilify, increase in cost with an increase in strength. Given the small sample size for many of the brand name drugs represented here, it comes as no surprise that Abilify does not match the CMS data well. This is likely explained by the pharmacy data representing a higher proportion of the higher strengths of Abilify (20 and 30 mg strengths) than the aggregate CMS data. Conversely, despite having only 87 and 80 claims each, Crestor and Januvia do match, likely because the cost per tablet is independent of strength. Because of this discrepancy, Abilify was omitted from average and total calculations in the table. Additionally, the pharmacy data did not include any prescriptions for Revlimid  in the data period, so Revlimid was also excluded from average and total calculations.

It is important to note that with the exception of Adair, the small sample size for pharmacy claims could skew results. Based on the dispensing profile of the pharmacy, the most likely skew would be toward the dispensing of a 30 day supply. Such a bias would result in an overestimation of profit for the pharmacy (with 30 day fills generally being accompanied by a higher dispensing fee and lower discount on Average Wholesale Price (AWP). A overestimated pharmacy profit would tend to underestimate the spread (PBM profit) for the drug.

The average pharmacy profit for the 8 brand-name drugs (omitting Abilify and Revlimid) was close to $26 in 2013. By comparison, the PBM profit (spread) was estimated to be $39 per prescription (about $14 MORE than the pharmacy makes).

Being in the Wrong Business

Where this exercise gets interesting is when one extrapolates the profit made by ALL pharmacies for the top 10 generic and Top 10 drugs by cost. Multiplying the profit per prescription for the pharmacy by the total number of claims for each drug, it is estimated that all pharmacies billing Medicare Part D (combined) made a profit of about $3.5 billion. Based on these calculations, all of the Medicare Part D Pharmacy Benefit Managers (a relatively small group of companies) are estimated to profited $3.25 billion (combined) on the spread. A significant amount of this profit would appear to com from brand name medications. The PBM insudstry is making this profit without having employees in the trenches caring for patients, without any investment in brick and mortar stores, and with inventory and equipment needed to actually dispense prescriptions. It also excludes any profit the PBM makes by participating as a provider of Mail Order prescriptions thru its own pharmacies. The lack of transparency into PBM accounting also precludes attribution of any brand-name drug rebates, which may, or may not, be included in the information reported by Medicare.

Conclusions

This exercise is far from a scientific evaluation of the data that CMS has released, though results seem to correspond with the apparent profitability that the financial results for many of the largest pharmacy benefit managers show. It would take a significant effort to determine a more accurate, national, estimate of pharmacy costs for these drugs in order actually quantify the amount Medicare Part D spends on “managing” the benefit. The purpose of this quick exercise, however was to make some general assumptions, and gain an insight into just how much money may being retained by the PBMs. It is no coincidence that the PBM industry and insurance industries have signfificant lobbying efforts in the nation’s capital. The stakes are quite high for these industries. If the quick estimates above are even reasonably close, the public, along with Congress and Medicare should take notice.

Almost $23 billion of an estimated $64 billion spent by Medicare on drugs 2013 was spent on these 20 drugs alone.  From this $23 billion, the calculations above estimate that $3.25 billion was paid to administrators of the Part D plans. If accurate, it means that PBMs took more than $8 billion in 2013 for their services. Real savings could be realized by Medicare by increasing transparency of PBMs and limiting the spread allowable for Medicare Part D administrators much in the same way that the PBMs have limited pharmacy reimbursement thru tools like MAC pricing lists. The Congressional Budget Office (CBO) estimates that Part D spending will total $76 billion in 2015. Transparency could easily shave several percentage points from this, and that adds up quickly.

The Rewards of Performance (Updated)**

It should come as no surprise to anyone active in pharmacy that CMS has started to emphasize quality and performance as a part of the metrics being used to grade pharmacies Pharmacy Benefit Managers (PBMs). The mechanism for this evaluation are the Star Ratings, and these the pharmacy specific metrics are subdivided into several disease specific measures. Pharmacies receive scores for each measure, and the Medicare Part D Prescription Drug Plans (PDPs) are scored by CMS based on their own measures along with an aggregate of the pharmacy specific performance numbers for all of their network pharmacies. The metrics are collected and calculated by PQS (Pharmacy Quality Solutions) thru the EQuIPP platform.

Pay for Performance

Recently, 2014 performance reports have begun to emerge, and pharmacies are starting to see the fruits of their quality oriented labor. The harvest, however, appears to be a little disappointing. Below represents the report and payment made by a Medicare Part D PDP (Prescription Drug Plan) to a medium size independent pharmacy*.

Performance Report with Payment information for a medium-sized independent pharmacy (filling 250-350 Rx per day)*

Description

The pharmacy represented above is fairly successful with respect to the performance measures. The Medicare Part D plan in this report likely represents only a small fraction of the pharmacy’s Medicare Part D patient population (likely less than a few hundred patients in total). The adherence (prescription drug compliance or PDC) measures for the first two measures (ACE / ARB / DRI and Statins) are well above the 5 star goals, and represent a small subset of the pharmacy’s patient population (around 40-50 patients each). The other two EQuIPP measures represent a very small population of patients (15-16 patients), and a single patient can dramatically affect the pharmacy’s scores (consider that with so few data points, a single patient can raise or lower a score by almost 7%). There does not appear to be any weighting of performance pay based on this type of bias, which is out of the control of the pharmacy.

Another notable observation is that a high performing pharmacy can be paid a premium for very high results. The first two measures show a payment rate of 125% (a 25% premium) for exceeding the 5 star goal. The performance scale extends from 125% down to 0% based on performance. There is not a clear indication where the break in reimbursement levels are being made.

By the Numbers

Some interesting details of the “pay for performance” model being used by this plan emerge from this from this table.

  • The total amount of performance incentives available to this pharmacy for 2014 (the entire year) was $1190. (this assumes a 25% premium is available for all measures and the pharmacy exceeds all goals significantly.
  • The pharmacy serves between 51 and 109 Star Measure Medication patients that are enrolled with this plan. (it is difficult to know how many patients are represented in more than one category)
  •  15% of performance pay was assigned to non-star ratings (non-EQuIPP) measures. These include 90-day fill rate and Generic Dispensing Rate.
  • For EQuIPP Measures, performance incentives average $5.63 per patient per year
  • By patient, incentive payments work out to be below $6 to about $20 per patient per year (depending on the number of patients that fall into more than one category).
  • Payments made for Medication Therapy Management (MTM) Stars Intervention** are being counted as payment already received by the pharmacy

Discussion

The amount being paid for outstanding pharmacy performance by this plan is anemic. For each patient falling into a star-ratings category, pharmacy has the potential to increase revenue by a maximum of $20 per year. In order to maximize this incentive, a pharmacy is going to have to spend money on programs to improve outcomes. Programs like Med Sync and compliance packaging all have significant overhead, and the potential incentives do little to ensure a pharmacy will maintain a positive margin for improving quality.

The use of non-equip measures for 15% of performance incentives is a troubling trend. Remember, it is the patient, not the pharmacy or the PBM, that ultimately should have the choice of a 90-day fill. Many patient prefer regular visits to their pharmacy. While some research supports the thought that 90-day refills increase patient compliance, these studies rely on claims data, making the assumption that actual compliance is directly related the patient having possession of the medication. In truth, leveraging  90-day fills removes only one potential obstacle to adherence, a trip to the pharmacy, while numerous other possible reasons for non-compliance remain. One drawback of 90 day supplies is that compliance issues take longer to recognize. With 30 day refills, the pharmacy can address issues of compliance with the patient within the first 30 to 45 days of therapy, whereas issues with a 90 day supply will not start to become evident for close to 4 months, well after the patient has poor compliance developed habits.

Extended-day supplies have other consequences to both patients and pharmacies. Patients who receive 90 days supplies are offered  savings thru discounted co-pays. The incentive available to the pharmacy for a high 90 day fill percent (with the above example, achieving more than 25% of star-rating drugs dispensed as 90 day supplies) is $152 per year. A typical 90-day pharmacy contract offers a $0 dispensing fee to the pharmacy while the 30 day dispensing fee paid to a pharmacy is typically no less than $0.50 per Rx  If the pharmacy moves from 4% up to 25% 90-day supply fill rate, the pharmacy would be forfeiting $200 dollars in dispensing fees in exchange for only $152 in incentive payments. In this case, a pharmacy failing to make the “grade” on 90-day fill rate is actually better off, and the patient retains their choice of 30 or 90 day fills.***

Another troubling trend is the deduction the plan makes for payments received by the pharmacy for Mirixa  (Medication Therapy Management or MTM) adherence related cases. The plan is essentially creating a ceiling on the total amount a pharmacy can receive for its work. This ceiling includes both incentives and any money available for MTM adherence related case payments. The pharmacy represented in the report above completed 100% of the adherence related Mirixa cases assigned to it in 2014 and received $310 for their work. A typical MTM work-up takes 30 to 60 minutes of pharmacist time, and the effective reimbursement rate is poor, even for a highly efficient pharmacy. The deduction of the Mirixa payments flies in opposition to the quality metrics supposedly being rewarded by this system. By this method, pharmacies with a large number of MTM adherence related patients cases have the potential reach their incentive ceiling entirely by completing MTM these cases. This pharmacy would then receive little to no additional quality bonus dollars for maintaining exceptional EQuIPP scores. It is unclear if these pharmacy would actually have to pay money back to the plan if their MTM adherence related case payments exceeded their “maximum” quality payment.

The problem with using a star ratings system (like EQuIPP) it that it only indirectly measures quality. Compliance can be artificially elevated without actually modifying a patient’s adherence simply by enrolling patients in a Med Sync program or leveraging automatic refills.  Claims data will trend towards improved adherence with these programs, but is the patient actually taking the medication?  Ultimately, the quality measures will have to evolve to include metrics that better reflect the value pharmacists can contribute to the system. Right now, the quality measures are better suited to drive patients to large, robotic mail order pharmacies that can show outstanding PDC values based solely on claims data. Pharmacists offer considerably more to the patient than an indirect measure of adherence, and the measures should emphasize the strengths of pharmacists, and focus less on product. 

Conclusions

This is just a first example of how plans are trying to incentivize pharmacies to emphasize quality. Many pharmacies are taking this challenge seriously, spending significant amounts of resources to improve their scores. The current reward model, however, is in serious need of revision. Without reimbursement on par with the value pharmacist contribute to healthcare, this model will not survive. Only time will tell where we are headed. Until then, pharmacists need to step up to the plate, as it were, and show the patient and the payor that they are capable of improving outcomes. Pharmacists can make a significant contribution to lower total health care costs. We need to get out there and make every encounter with the patient count!

Footnotes

* While this chart represents real data from an actual pharmacy report, it is possible that pharmacies may see different reimbursement based on things like contracts, PSAO affiliations, geographic region etc. This graph is for illustration purposes only.

** Updates are represented by strike thru text and added italic corrections. Updated information was provided by PQS.

*** Updated: The plan here does not have a different rate for 90 day supplies.

What is in a Name?

Each of us has a name. For many of us, it was the name our parents gave to us. Others have nicknames they have elected to use. I know a few people who go by their middle name and still others may have legally changed their name for a variety of reasons (my favorite is a pharmacist who legally changed his first name to Rx—Rex, get it?).

We all have a name we prefer. Maybe many are not all that picky about the which is used. Me, I answer to just about anything. Really.

When I became a partner in my pharmacy, I became the third male owner, I found patients would address me about a third of the time by any of my real names (Mike, Michael, hey, you!). Frequently, patients would address me as one of my business partners names.

At one time worried about these de-personalized interactions with my patients. I would feel the need to be recognized  and correct the patient. With time, however, I became adept and recognizing when someone was talking to me because I couldn’t count of the salutation to give me context.

Today, I answer to just about any name. Specifically, though, I am comfortable answering to Bernie, Bill, and Randy. I no longer spend time correcting patients. I have come to understand what was really going on. Each patient has “adopted” one of us as their pharmacist.

The patient has made a positive association with one of my past or present business partners. The fact that they recognize me as that person in proxy is a one of the highest forms of compliment that can be given. It means that I am being recognized both for what I have done, and for what my business has accomplished.

As a side note, however, I will take action if my paycheck doesn’t have my name on it. I have to draw the line somewhere!

Why Don’t Payers Get It?

I was just on a conference call with a managed care organization (MCO) that will respond to a request for proposal (RFP) as our state shifts our medicaid administration to two or more MCOs.  Unfortunately, the MCO that we spoke with today did not have any idea about the role of pharmacists as care providers.  WHAT?!!!!  How after all these years, with pharmacy’s movement from product distribution to patient care, can a managed care organization or payer not understand the value of pharmacists as clinical providers.

Part of the reason is because payers are not seeing this type of practice across the board.  Also, not all pharmacists are practicing to the level of their degrees–identifying and resolving drug therapy problems, providing recommendations to prescribers, and documenting their activities.  Lastly, payers may be looking at the wrong metrics when reviewing pharmacies (e.g. focussing on drug costs and not clinical parameters and patient outcomes, including health care spend).

As a profession, we need to do a better job of selling ourselves to payers and, in particular, our value to the health care team.  Our value is that we have access to patients, we are able to identify and resolve drug therapy problems, we can ensure that patients are on safe and effective medications, and most importantly, we can make sure patients are achieving therapeutic outcomes–which will positively affect their total health care spend.

But all pharmacists also need to step up their efforts to develop and implement patient care services if they have  not already done so.  There is no money in product distribution because there is little value from patients and payers.  The value statement is patient care, achieving health outcomes, and the unique role and knowledge of pharmacists to monitor and manage patients drug therapy.   So, we need to make this the “norm” of pharmacy practice–not the exception.

Pharmacists, as a group, also need to be more vocal about the clinical roles to payers, legislators, and regulators.  We cannot just sit on the sideline hoping that someone can figure this out–each of us has a responsibility to advocate for our profession–to reach out to payers and let them know what you are doing and the value you bring to their clients through your patient care services.  If we do not do this, our profession will continue to experience the response that I experienced today–and that is getting old!!!

Pharmacists in the 21st Century

Pharmacy and pharmacists are navigating uncharted waters. The reason is the many the recent and significant changes in healthcare. Two very different factions emerging within the profession:

  • Medications as a commodity and
  • Pharmacists as providers of care

The competition between these factions will shape pharmacy and healthcare for years to come. Will one faction win over the other, or will the profession move in two different directions?

Medications as a Commodity

The mechanics of this faction are complicated, and there are many different parties actively involved. The net effect for pharmacy is a severe reduction in reimbursement for the drug product. Historically, pharmacies and pharmacists have earned their living providing both medication and care, but being paid only for the medication component. The downward pressure on reimbursement has resulted in what we have previously named “the stripped down model of pharmacy.”

The ramifications for the commoditization of pharmaceuticals are significant. Only by ramping up volume can a pharmacy continue to meet overhead costs. Increasing efficiency can take a pharmacy only so far down this path before the bottom line becomes negative. The largest single overhead expense in a pharmacy is wages, and one person can only fill or check a finite number of prescriptions in an hour.

Mail order pharmacy has pushed efficiency to the logical end, where one pharmacist (which is legally required in most states) is “checking” thousands of medications a day. Robotics and automation run the “pharmacy” in these operations.  These large prescription mills can deliver an almost limitless number of prescriptions every year without any human intervention. Medications show up in the mail box, and the patient has to contact an unknown pharmacists over the phone if they have any questions or concerns.

Even with a highly efficient operation, retail pharmacies across the country are struggling to maintain profitability given the ever decreasing reimbursement this model provides. Smaller pharmacies across the country are closing at an alarming rate. Many of these pharmacies service more rural areas of the country, creating in interesting dilemma for patients. This Darwinian process of survival of the biggest could have severe repercussions as healthcare evolves. In this faction, efficiency has come at the expense of patient care.

Pharmacists as Providers of Care

On the other side of the battle are the pharmacists working with patients to ensure therapeutic outcomes. In direct contrast to the high efficiency, robotic or automated systems required in the above model, a care oriented practice may have several pharmacists working at any given time. The difference is what is being provided. While the patient ultimately receives a medication (product), they are also receiving service and care. The pharmacists review the patient’s medications, look for and address real and potential problems with the patient and their doctor(s), and work with the patient to ensure that they are obtaining the optimal outcomes. Pharmacists ensure medications are used safely and effectively.

At the present time, pharmacies are still being paid primarily for product, and it is likely that no matter which direction the profession of pharmacy ultimately follows, reimbursement for the drug product will forever be limited. Future support for the pharmacist as a provider of care will have to come from a fee for service model. Medicare and other are starting now recognizing the importance of pharmacists providing care to enhance patient outcomes. Even a single pharmacy has the potential to save a payor millions of dollars yearly by providing quality care (this will be the focus of a future post here).

A fee for service or pay for performance system will eventually need to become reality. Until reimbursement for service catches up to the importance of pharmacists providing care, pharmacies that have embraced the service model are struggling to stay in business. It may not be until Medicare recognizes pharmacists as providers, allowing them to bill for clinical services to the patient’s medical benefit, that the pharmacy as a service model gains widespread traction in our healthcare system.

Winners and Losers

In case it isn’t clear, there are no clear cut winners. Pharmacies and pharmacists will continue to struggle on both sides. What is becoming forgotten is the patient, who has the most to lose.

It is likely inevitable in the current health care system,  that medications will become a commodity. Reimbursement for the product in the future will probably only be sufficient to cover basic overhead. It is with the emergence of reimbursement to pharmacists for care that the fate of pharmacy as a profession rests.

If I had to pick a faction to win, however, it would be the pharmacy as a service model. In this regard, the profession of pharmacy has a lot in common with the professional airline pilot. Consider that today’s airplanes can take-off, fly and land without a pilot, much like a prescriptions filled by an automated pharmacy. Now ask, would you want to fly in a plane without a pilot? Who will be there if something doesn’t go as planned, and the automated system cannot land the plane? Similarly, how safe would you feel if there were no one looking over your medications to ensure that there were no potential or real problems? Who will answer questions about the medications and how to best take them, and will they know you? Pharmacists providing care are an important part of the health care system. Until the time when pharmacists are recognized as providers, pharmacists will need play on both sides of the equation: making their practice as efficient as possible while at the same time going the extra mile to make every encounter with their patients count!

 

If You Don’t Ask…

[dropcap color=”White” background=”black” style=”rectangle” size=”big”]M[/dropcap]anaging a small business is a challenge. Pharmacy is no exception to this rule, and because it is one of the few (possibly even the only) retail business that has virtually no control over what it charges for most of what it sells. Watching the bottom line often resembles an event at the X-Games.

Being savvy when it comes to money is important. A great example is the satellite radio that may be in your car. Experience has shown that the company selling the subscription for this service is willing to take less than their advertised rates for the service, so why pay more? One only has to ask (and maybe it doesn’t hurt to threaten to cancel the service along the way) to be offered a better rate. Pharmacy owners can, and should, leverage this approach with a variety of venders. Consider some of the successes seen by my stores over that last few months:

  • When approached by a software vender for a required upgrade on my almost new (2 year old) system, the vendor wanted almost $3000. Asking the appropriate questions and escalating the issue resulted in a very substantial drop in the price to update.
  • When my prescription vial supplier cold-called me and asked how things were going, I was honest: things are hard. I then immediately asked for a larger rebate based on my volume. While the sales rep was not expecting this, I was able to secure real savings (in the form of additional rebates) within a few months of starting the conversation.
  • Secondary wholesalers regularly call with offers of pharmaceuticals at prices lower than my primary wholesaler offers. Why accept their first offer? Asking “how low can you go?” regularly results in better opportunities.
  • The employees wanted a water cooler for the break room. They presented a single quote to us. A few calls later, we had both companies bidding for our business, resulting in a much lower overall cost for the service in the end.
  • Buying groups provide rebates that help a pharmacy’s bottom line. Things in pharmacy change so rapidly, with prices dropping and soaring for products seemingly every minute. If a buying group contract has not been updated in a while, it cannot hurt to approach them for a better rebate rate, at least until the buying group updates it contracts to keep up with changes.

Overall, in business, it cannot be reiterated enough: “If you don’t ask, you won’t receive.” In today’s business environment, one cannot simply accept the first offer for any service or product. One needs to leverage competition and loyalty with vendors to enhance the bottom line.  Not asking for better pricing means possibly not being in  business this time next year.