United States: Front End Changes And, Again, More DIR Columns

Last Updated: October 20 2014
Article by Tara E. Dwyer

Since the beginning of the Medicare Part D program, CMS has introduced many reporting mechanisms for trying to understand drug pricing, price concessions, and the cost of providing services to Part D members.  The tool CMS has turned to most often is the direct and indirect remuneration ("DIR") report.  The stated purpose of DIR reporting is for a plan sponsor to report all price concessions it received throughout the plan year that impacted how much it cost to provide Part D services to its members.  CMS then reconciles its payments to plan sponsors based on their DIR reports.  Over the last eight years, CMS has continuously expanded DIR reporting requirements trying to further understand the costs associated with the Part D program.  The DIR reports required to be filed this year for contract year 2013 included more than twice the number of DIR categories and columns as when the Part D program started in 2006.  The number of new columns and newly discovered or created categories of DIR or other remuneration that need to be reported on a DIR report (even though it is not DIR, for example, bona fide service fees) grow so quickly that at times it has been nearly impossible to obtain substantive guidance from CMS regarding what types of amounts go into what categories, often leaving plan sponsors in a frustrating and at times scary position.

After collecting years of DIR reports, CMS has decided that not all price concessions are DIR that can be reconciled on the back end.  Rather CMS has decided that some price concessions, specifically administrative and transaction fees charged to pharmacies by plan sponsors and their contracted pharmacy benefit managers ("PBM") are price concessions that should be reflected on the front end and reported through prescription drug events ("PDE").  Moving these fees from DIR to PDEs and further defining and dividing what is to be reported in DIR could have significant financial implications for Part D plans sponsors and PBMs and will likely result in the industry's continued confusion regarding DIR. 

  • At the end of September, CMS published draft guidance seeking comments on its newest form of DIR: pharmacy price concessions that could not be reasonably calculated at the point-of-sale and the difference in an estimated point-of-sale price concession and the actual price concession ultimately realized.  This new form of DIR will not be reported until 2017 for the 2016 plan year and is the result of CMS adopting a new definition of "negotiated price" and slowly developed through a variety of forms of guidance.
  • In CMS' Final 2014 Call Letter published in April 2013, CMS questioned the administrative and transaction fees that plan sponsors and PBMs were reportedly charging pharmacies.  Pharmacies had reported to CMS that these fees were being charged to participate in a sponsor's network or preferred network. Because these fees were often levied on a per-claim basis, CMS believed that such fees affected the negotiated price of the drug dispensed to the Part D member but recognized that it order to clear up any ambiguity, CMS would need to amend the definition of "negotiated price" through notice and comment rule making.
  • CMS next addressed the administrative and transaction fee dilemma in its Final Medicare Part D DIR Reporting Requirements for 2012, published on June 7, 2013 ,where it explained that such fees, if not being accounted for through negotiated price at the point-of-sale, should be reported through the DIR report, specifically in column #5 for price concessions for administrative services.  
  • Then in January and May of 2014 through its Proposed and Final Contract Year 2015 Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, CMS reiterated its position that such fees affect the negotiated price of a drug and should be reflected at the point-of-sale and reported on PDEs.  Through this process, CMS adopted a new definition, effective 2016, of negotiated price that more clearly encompasses the pharmacy administrative and transaction fees charged at the point-of-sale.  In response to this proposed and ultimately final change, CMS received many comments from industry participants that identified instances where the actual administrative or transaction fee (price concessions) charged is not calculated at the point of sale and may ultimately depend on many factors that are unknown until a later point in time.  CMS expressed its belief that in many instances the price concessions could be at least approximated at the point of sale, and in those instances where they could not be, the concessions must be reported as DIR.  
  • In June 2014, CMS published its final Medicare Part D DIR Reporting Requirements for 2013 where it re-highlighted column #5 as the bucket in which to report post point-of-sale per claim administrative fees.

The change in the definition of negotiated price will potentially create two new possible DIR categories.  Any pharmacy price concession that could not be reasonably calculated at the point-of-sale must be reported as DIR (this is not new) and, under the draft guidance, this would include the difference in price concessions that were reasonably calculated at the point-of-sale by using approximations based on past experience and were reported through the PDE versus the concessions ultimately realized (this is new).  This category of price concession would need to be further divided into two categories, one associated with preferred pharmacies and another associated with non-preferred pharmacies (this is new).  Plan sponsors that have this type of DIR would also be required to provide an explanation as to why they were unable to reasonably calculate the price concession at the point-of-sale.  

It will be interesting to see what comments CMS receives regarding this recently proposed change and how the draft guidance develops or changes as a result of those comments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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