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DIR Fees and Value-Based Contracting in Focus for Specialty Pharmacy

News Release

With an aging U.S. population and advances in the treatment of increasingly complex and chronic conditions, the specialty pharmacy industry is booming. Sales are expected to account for 50 percent of pharmacy revenues by 2020, according to some estimates.

With this as a backdrop, Susan Brichler Trujillo and Simone Colgan Dunlap, partners at Quarles & Brady, discussed key trends in the specialty pharmacy space as part of Quarles & Brady’s 2017 Pharmacy Law Symposium in Chicago. In advance of the session, Trujillo and Colgan Dunlap asked attendees what they wanted to know more about – and the attendees zeroed in on direct and indirect remuneration (DIR) fees and value-based contracting.

DIR Fees

Trujillo defined DIR fees as any form of price concession, received either by a Medicare Part D sponsor or pharmacy benefit manager (PBM), from a source that they have contracted with that serves to decrease costs incurred under the Part D Plan by the Part D sponsor. Reasons for remuneration could be a manufacturers’ rebate or legal settlement, PBM penalty payments and repayments that impact Part D drug costs and post-point of sale pharmacy payment adjustments that are not included in the negotiated price, among many others. DIR payments have increased over the past few years, reaching $23.6 billion in 2015, or more than 17 percent of gross drug costs.

The situation surrounding DIR fees is complicated. DIR fees can assessed against pharmacies as part of incentive payments or network access fees, and the timing and volume can be unpredictable. Per-claim related fees can be assessed well after the point of sale, which is a significant issue when it comes to expensive specialty medications.

“DIR fees are being charged back four to six months after a clean claim has gone through the system,” Trujillo said. “And because of the cost of specialty pharmacy drugs, fees based on a percent of the total claim submitted can result in a significant claw-back.”

Pharmacy benefit managers support these fees, arguing that they reduce the federal government's costs for Part D, lower beneficiary premiums, and are used as an incentive-based mechanism to drive better clinical performance.

Twin bills in introduced in Congress earlier this year would amend Title XVIII of the Social Security Act to prohibit Part D plan sponsors from retroactively reducing payment on clean claims submitted by pharmacies. Similar measures are being considered in some statehouses, including New Mexico and Georgia. Legislation that has passed in the Peach State and is under consideration in New Mexico would prohibit PBMs from charging or holding a pharmacist or pharmacy responsible for a fee related to an adjudication of claims under certain conditions.

“The states are trying to increase transparency and predictability,” Trujillo said. “But the pharmacy benefit management industry is likely considering lawsuits to block the enforcement of these types of provisions.”

Value-Based Contracting

Faced with rising costs, health insurance companies are opting to pay for drugs based on their effectiveness. A survey released earlier this year by Avalere Health shows that one in four health plans have at least one outcome-based contract. The most common method for value-based contracting occurs when a manufacturer agrees to provide a rebate to a payer if the drug doesn’t work as promised, Colgan Dunlap said.

For manufacturers, the incentive is to differentiate its products, demonstrate effectiveness and secure formulary placement or increase market share, Colgan Dunlap said. Pharmacies usually are motivated to remain competitive – and patients’ motivations are clear. “They just want to be able to afford their medications,” Colgan Dunlap said.

There are a host of legal issues to consider, notably regarding privacy. Measuring outcomes depends largely on patient information, which is usually protected under state law and HIPAA, Colgan Dunlap said.

“If you have a well-drafted patient authorization, you can use data and get it to stakeholders,” she said. “The catch is getting these authorizations in place, because it can be onerous and costly.”

Colgan Dunlap was asked whether a value-based contract was worth the hassle. “That depends on a huge number of factors – if you can get it to work and it makes financial sense for both parties,” she said.“ But it’s not an easy answer.”

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