Editor’s Note: This month, we offer updates on two topics: Assignment of Benefit Confusion for Pharma Manufacturers and CMS Eliminating Retroactive DIR Fees. As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting Lead or consulting@integrichain.com and we would be happy to talk you through it.

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Assignment of Benefit Confusion for Pharmaceutical Manufacturers

Manufacturers are familiar with the mechanisms by which physician-administered drugs are reimbursed to payers/SPs or providers via either third-party payer (insurance) “pharmacy benefit” or “medical benefit” vehicles. However, it’s also important for manufacturers to understand the flow of funds and the market dynamics that aid in determining the appropriate price of drugs, specifically as it relates to  expensive oncology drugs.

At a high level, there are three reimbursement avenues for physician administered drugs:

Buy and bill. The physician buys the drug from the manufacturer or distributor and the physician gets reimbursed under the patient’s insurance medical benefit when the drug is administered to the patient.

White bag.  The physician obtains the drug from a specialty pharmacy (SP). The SP bills the patient’s insurance and the pharmacy is reimbursed for the drug.

Brown bag. The patient picks up the drug at the pharmacy and brings it to the provider’s office or clinic for administration. The pharmacy bills the patient’s insurance and is reimbursed for the drug.

In the above options, buy and bill will show up as a medical claim while white or brown bagging will result in a pharmacy claim. From the provider’s standpoint, white or brown bagging does not provide any financial exposure nor avenue for profit related to the drug.

Different stakeholders have different perspectives as to what claim/reimbursement path a script should take based on the financial incentives. Stakeholder financial incentives could vary between different drugs within a therapeutic class or even amongst different patients for the same drug. Providers will look to favor prescribing physician administered drugs which provide them with the greatest reimbursement. Likewise, PBMs and other payers will favor drugs   that provide them with lowest price resulting in the greatest margins after taking into account manufacturer rebates and health plan contractual cost sharing agreements. As a result, a drug’s reimbursement flow may change to better serve one of the stakeholders in the chain without the manufacturer’s knowledge or agreement while possibly sacrificing the overall patient benefit. These changes can impact manufacturers’ over all product profitability. If you are interested in learning more and understanding how the various channels may impact your drug’s market share and profitability, reach out to your IntegriChain Operational Consulting point of contact who can assist in an analysis for your specific drug(s).

References:

• https://www.drugchannels.net/2023/09/white-bagging-update-2023-saving-money.html

CMS Eliminates Retroactive DIR Fees 

In the Medicare Part D space, direct and indirect remuneration (DIR) fees have been typically set up as post point of sale compensation which ultimately adjusts the final price paid for the payer or to the pharmacy for the drug. Examples of such compensation are rebates provided by manufacturers or concessions paid by pharmacies. The DIR is factored into CMS’s calculations of Medicare payments to Part D plans. Unfortunately, since the fees are paid after Part D prescriptions are filled, pharmacies end up with reduced margins on Part D drugs (as they are unable to recoup their costs due to the unaccounted for fees) while at the same time increasing patients’ out of pocket outlay at the pharmacy. As of January 1, 2024, CMS requires that the DIR fees are reflected in the negotiated price the patient pays at the pharmacy counter such that the actual final price is recognized at the point of sale (vs post point of sale). Additionally, CMS requires any Part D plans’ and PBMs’ fees, such as “network access fees,” “administrative fees,” “technical fees,” and “service fees” which are deducted from the cost of Part D drug purchases by pharmacies to also be reflected in the negotiated point of sale price to patients. 

CMS’s intention for the change in DIR fees was two-fold: 

1. Reduce patients out of pocket costs and
2. Increase profit predictability for pharmacies

If you have any questions regarding DIR fees, please reach out to your IntegriChain Operational Consulting point of contact.

References:

• CMS Eliminates Retroactive DIR Fees

As always, IntegriChain continues to support pharma manufacturers in breaking down and staying ahead of new regulations. If you have any questions or concerns, please reach out to us at consulting@integrichain.com.

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