How Did We Get Here?

W hen we talk among ourselves about our business, we use lots of abbreviations and acronyms. We take a lot of things for granted. To understand what I’m talking about all you need to do is try to explain how you get paid to somebody. AWP, WAC, discount, PBM, RA, EOB, DIR, copay, insured amount, rebate, clawback, etc. This is the barrier we face when talking to legislators. We are in a complicated business. They do not have the time to understand it. How did it get this way? Wasn’t it a lot simpler before computers and prescription benefit management companies? They started out as claims administrators, so much per claim; they were transparent. They made it efficient for insurers to collect and pay claims. Then, additional services were added. Somewhere along the way, they moved generics from the standard HCFA MAC to one of their own proprietary invention. As they developed formularies of covered and non-covered items, manufacturers of brands scrambled to ensure that their product was on formulary. Thus was born the manufacturer’s rebate. Along came Medicare D in 2006. PBMs scurried to put qualifying plans together because Med D represented an increase in utilization. There were going to be more prescriptions. About four years later, Humana agreed to have Walmart pharmacies be preferred pharmacies – for a price. It did not bother us that much to witness the birth of direct and indirect remuneration (DIR) at the time but in hindsight it should have. Then, in a plodding way preferred and exclusive networks worked their way across the plans and grew insidiously. Independents were hypnotized into competing through their own preferred network called Smart D, an abysmal failure. DIR fees morphed into fees that were based on generic dispensing rates and in other cases the 5-Star performance ratings at the individual pharmacy level. This occurred in the extreme to the point where DIR was morphed into performance payments. The words changed but the financial picture did not. Many stores are just noticing DIR fees now. Fortunately for them, the Center for Medicare and Medicaid Services (CMS) has also noticed the rapid growth of these fees. In a January 19, 2017 report (http://www.ncpa.co/pdf/ advocacy/2017/cms-fact-sheet-part-d.pdf) CMS noted that from 2010, DIR has been growing approximately 22% per year outstripping increases in drug costs. It appears that the use of DIR has helped maintain beneficiary premiums, but has also accelerated the patients’ run up into the donut hole on the way to catastrophic coverage. What does this mean? The plans and PBMs are maintaining flat premiums, which is a good thing you would think. You know that inflation applies each year, so where did the increases grow? CMS’s share of the donut hole and catastrophic coverage has increased enormously. It looks like the PBMs and plans have found a way to maximize their discounts from providers and business partners through DIR, while simultaneously shifting increased cost to CMS. Sounds ingenious. Doesn’t it? It was, right up to the point where it forced CMS to notice.