Prescription drug pricing and reimbursement are complicated and confusing as it is. DIRs have only made them more so. And much more painful for community pharmacies.
What are DIRs?
DIR stands for Direct and Indirect Remuneration. The term was initially used by the Centers for Medicare and Medicaid Services (CMS) to refer to all price concessions which PBMs and plan sponsors (insurance companies, HMOs, chains and PBMs offering Medicare Part D plans) receive for Part D prescription drugs that were not included in the point of sale transaction (i.e., when the drug was dispensed to the patient and the charge sent to the plan sponsor or PBM). CMS reconciles payments to plan sponsors at the end of each year and one of the reconciliation involves reducing plan reimbursements by the amount of the DIRs received by plan sponsors.
Until a few years ago, people infected with the Hepatitis-C virus (HCV) were in a bad way. Treatments were available, but they included interferon which had nasty side effects. Most patients experienced fatigue, headache, and muscle aches. A third or more had nausea, fever, depression, irritability and insomnia. Even worse, cure rates averaged under 60%.
But then there was a major clinical breakthrough. Gilead Sciences introduced a new drug –Sovaldi (sofosbuvir) – that provided cure rates of 95%. While most patients had to take Sovaldi with interferon, many could be treated with an interferon-free regimen that avoided most side effects. A year or so later Gilead introduced an improved product – Harvoni – that consisted of sofosbuvir and ledipasvir. With Harvoni almost all HCV could be cured by a single 12-week, interferon-free regimen. What a drug – ultra-high cure rates and minimal side effects.
But, as with most things in life, there was a down side. The drugs are expensive. The list price for the recommended 12-week treatment is $84,000 for Sovaldi or $94,500 for Harvoni.
Retail pharmacies, despite the fact that they face high competition, low reimbursement rates, and limited-to-no control over their pricing, continue to be profitable. Census data quoted in the Drug Channels blog indicate that gross margins in retail pharmacies have actually increased over the last few years. Data from the NCPA Digest indicates that most independent pharmacies continue to be profitable. But how do they do it? My calculations, using publicly available sources, indicate that pharmacies are probably taking a loss on most prescriptions that they dispense.
Do cancer drugs provide good value or are they overpriced? Last week’s post discussed the value framework introduced by ASCO for evaluating the value of cancer drugs. This week we will look at another approach to estimating the value of cancer drugs – the DrugAbacus interactive tool developed by Sloan Memorial Kettering Cancer Center. According to a recent Wall Street Journal article, Dr. Peter Bach developed DrugAbacus “to get drug makers, insurers, doctors and patients talking about the factors that should determine price” and to develop “a value-driven system for pricing cancer drugs”. A screenshot of the tool is shown below.
It’s no surprise that costs of cancer drugs are high. Recent estimates put the average cost of cancer drugs at $10,000 per month with some therapies costing as much as $65,000 per month. If it weren’t for insurance, prices this high would put cancer drug therapy out of reach for most families. Even with insurance, many families cannot afford cancer drugs because of high patient cost sharing. Many insurance programs, such as the Medicare Part D program, set patient cost sharing as a percentage of the drug’s cost (usually in the 20% to 30% range) rather than as a fixed dollar amount. Medicare Part B, which covers most injectable cancer drugs, has a patient cost share of 20%. How many families can afford cost sharing of $2,000 to $3,000 per month?
Oncologists and their professional organizations are concerned about this and have taken steps to address the problem. The WSJ recently reported that Memorial Sloan Kettering Cancer Center has developed an on-line, interactive tool to help physicians and patients determine what cancer drugs are worth. I will discuss this tool in next week’s post. Today’s post will discuss a value framework for assessing the value of cancer drugs that was recently announced by the American Society of Clinical Oncology (ASCO), the professional organization representing oncologists.
One of the purposes of this blog is to educate readers about basic issues in pharmacy business. This post will discuss the differences between discounts, rebates, and kickbacks. Warning – I am not a lawyer and this is not a legal opinion. It’s a non-lawyer’s attempt to understand and explain some basic pharmacy business concepts.
A headline on the Wall Street Journal Health Blog from earlier this year announced that “AstraZeneca Pays $7.9M to Settle Kickback Charges Paid to a PBM” The federal government alleged that AstraZeneca made illegal rebate payments to Medco in exchange for preferred formulary position for Nexium (a very popular drug prescribed for ulcers).
Pharmaceutical companies commonly provide rebates to PBMs and specialty pharmacies to increase use of their products, so why was the rebate in this situation a kickback? Continue reading →
Big changes are occurring in Medicaid reimbursement for prescriptions and, surprisingly, this has received little attention in the pharmacy press. Medicaid agencies in 9 states have switched from reimbursement based on Average Wholesale Price (AWP), which provides pharmacies’ with bigger profits on more expensive drugs, to one based on pharmacies’ actual acquisition costs (AAC), where profits are determined by the dispensing fee. If this trend spreads to private payers, it could have a huge impact on pharmacies’ profits and viability. Continue reading →