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DIR Fees Pose a 5-Star Problem for Pharmacies

Kate Traynor

Kate TraynorNews Writer
News Center

To better understand direct and indirect remuneration (DIR) fees, pharmacists should learn how the fees relate to Medicare's Star rating system, says Sandra Durley, associate director for ambulatory care pharmacy for the University of Illinois (UI) Hospital & Health Sciences System.

"The Medicare Star ratings are often the starting point for the DIR fees," Durley said.

DIR fees are retroactive, performance-based assessments that Medicare Part D drug plans charge to pharmacies months after approving the claims associated with the fees [see April 1, 2017, AJHP News]. The adverse effects of the fees on pharmacy budgets have been widely reported.

Star ratings were developed by the Centers for Medicare and Medicaid Services (CMS) to identify high-performing providers of services to Medicare beneficiaries—including drug plans that participate in the Medicare Part D prescription drug program.

For drug plans, the Star ratings involve metrics related to the use of high-risk medications, the completion of a comprehensive medication review, and patients' adherence to regimens for the treatment of diabetes, hypertension, and hypercholesterolemia.

Top-performing drug plans, in theory, have a marketing advantage over lower-performing competitors. And CMS rewards plans that rate high on the 5-star scale.

One type of reward essentially creates a full-year open-enrollment period for 5-star drug plans. This incentive applies to both standalone Part D drug plans and Medicare Advantage programs that include prescription drug coverage.

Top-rated Medicare Advantage plans, but not standalone Part D drug plans, are eligible for quality bonus payments from CMS. High-performing Medicare Advantage plans also receive rebates that must be used to fund supplemental benefits for beneficiaries or reduce their coverage costs.

Durley said drug plans, to improve their own Star ratings, are applying drug adherence performance metrics to pharmacies and using DIR fees to drive the programs. But the plans' implementation methods are unlike those used for traditional pay-for-performance programs.

"Plans are participating in rewards-based systems. . . . The higher their Star ratings, the more incentive they have as a plan," Durley explained. "But, through the DIR fees, pharmacies are participating in a penalty-based system."

Don Carroll, associate chief of pharmacy at the Cleveland Clinic in Ohio, said DIR fees assessed by drug plans and their pharmacy benefit managers (PBMs) are "taking away our ability to expand our population health initiatives and our ability to support important foundational healthcare things that we can do as a pharmacy."

"At Cleveland Clinic, with our 18 stores and our specialty pharmacy, we had $250,000 of DIR fees last year," Carroll said. "So it pulls margin out of our system . . . and sends it over to the PBMs."

The DIR fees for 2016 amounted to "about 3 or 4 weeks of our whole network's work, in terms of margins," Carroll said.

Carroll said Cleveland Clinic's DIR fees for last year were double those from 2015, and he noted that Cleveland Clinic had doubled its specialty pharmacy operations last year.

"The busier we get, the more fees we get," he said. But he said declining to participate in pharmacy networks of large national PBMs would cut off Cleveland Clinic's pharmacies from a large portion of its customers and isn't a viable option.

Antonio Ciaccia, director of government and public affairs for the Ohio Pharmacists Association, had a blunt description of DIR fees:

"It is legalized theft," he said. "At a community pharmacy level and a health-system level, you're really basically giving somebody a blank check to pull money out of your bank account."

Ciaccia has heard from pharmacies in Ohio that have incurred DIR fees ranging from a few hundred dollars to hundreds of thousands of dollars. For now, he said, the fees are assessed only by Medicare Part D drug plans.

But he cautioned that if the PBMs deem the fees a success for Part D, they may well expand them to private-sector drug plans and, perhaps, state Medicaid programs.

Durley, at UI, said one tool that drug plans and pharmacies use to manage performance related to DIR fees is the EQuIPP software platform from Pharmacy Quality Solutions (PQS), a joint venture launched in 2013 by the Pharmacy Quality Alliance (PQA) and Inc. EQuIPP allows subscribers to track adherence data for pharmacies in Part D plan networks.

EQuIPP is marketed to pharmacies and health plans and was promoted during its rollout as a "trusted source for continuous performance measurement of PQA measures, including those used in Medicare Part D Stars."

PQS announced in December that more than 95% of community pharmacies in the United States subscribe to EQuIPP, and the service provides access to data on 58% of Medicare beneficiaries nationwide.

Durley said her health system investigated EQuIPP, and is now implementing it, as a way to monitor adherence rates and improve patient care. She said her staff first learned about drug plans' intent to launch adherence-based pay-for-performance systems last year during an EQuIPP demonstration.

Around that time, she said, the pharmacy rolled out a new software platform that allowed the staff to reconcile its accounts receivable payments and fees—including DIR fees.

"That opened my eyes, and I realized that we were indeed being charged significant DIR fees," Durley said. In the initial assessment, she said, fees for one drug plan alone amounted to "tens of thousands of dollars" during a single trimester.

Durley isn't the only one to see a link between DIR fees and Medicare's Star ratings. The Community Oncology Alliance released a white paper in January calling DIR fees a misapplication of Medicare's Star rating system that is "wholly improper and unjustifiable."

The document describes how the fees can be particularly brutal for specialty pharmacies that dispense maintenance medications as a convenience to their patients. In one DIR fee model, drug plans measure adherence rates for the drug classes targeted in Star ratings but assess DIR fees as a percentage of the payment for all claims processed by the pharmacy, including those for high-cost specialty drugs.

Durley said she's seen this model applied to her pharmacies along with a "somewhat less objectionable" model that only assesses DIR fees for claims directly related to the Star ratings.

And some plans, she said, charge an upfront fee for every prescription filled for a medication subject to Star rating adherence metrics. Pharmacies then have the opportunity to earn back that fee—or, generally, a portion of it—on the basis of performance against competitors.

"It's a very flawed system," Durley said.

She also noted that the use of claims data to assess adherence without also factoring in data from medical records can be misleading.

For example, she said, "If a patient has a medication that needs to be filled every month and the patient has a 2-week hospital stay, the refill might be delayed. The patient is getting the medication . . . at the hospital. But looking at the prescription claims data alone, it looks like the patient went 2 weeks without the medication."

Adverse events, a change in medical status, and even the use of product samples obtained from a patient's physician might also affect an assessment of adherence on the basis of pharmacy claims data.

"There are reasons that patients might not get their prescriptions filled on time, and there's currently no way for us to put that information into the systems used to monitor adherence," she said.

[This news story appears in the April 15, 2017, issue of AJHP.]

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