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Peer Reviewed
Pharmacy Practice in Focus: Health Systems
This quality improvement initiative demonstrates that pharmacies were unable to use performance reports provided by the payer to improve performance scores and decrease direct and indirect remuneration (DIR) fees.
Précis
This quality improvement initiative demonstrates that pharmacies were unable to use performance reports provided by the payer to improve performance scores and decrease direct and indirect remuneration (DIR) fees.
Objectives
We launched a quality improvement initiative at Nationwide Children’s Hospital (NCH) outpatient pharmacies to use performance reports provided every trimester between 2018 and 2022 by one of our Medicare Part D payers with the goal of improving performance scores and decreasing DIR fees.
Study Design
We completed a review of 15 performance reports provided to NCH outpatient pharmacies (N = 2). The data we collected included the year, trimester, pharmacy benefit plan, score, variable rate, variable rate range, total dollar amount in DIR fees, and total dollar amount in ingredient cost (IC). We collected this information for both brand name and generic drugs.
Methods
We tracked changes in performance score, variable rate range, and the monetary impact of DIR fees. We used percentage of IC paid to report DIR fees. We attempted to find a relationship between performance score and DIR fee through statistical analyses. We also attempted to improve performance scores by identifying specific patients who were impacting scores and in need of pharmacist interventions.
Results
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Performance score fluctuated from trimester to trimester. Percentage of IC paid fluctuated but consistently increased. The variable rate range also consistently increased over time regardless of performance score. We found a statistically significant inverse relationship between performance score and percentage of IC retained within the assigned variable rate range, with the variable rate moving inversely by 0.06% for every 1% change in performance score. However, the amount of time and labor required to acquire and sort data in a way to potentially identify patients needing pharmacist interventions to improve performance score was deemed unsustainable, and no interventions were performed.
Conclusions
The plans continued to increase the dollar amount of IC retained despite fluctuations in score from year to year, so an increase in performance score only allowed a pharmacy to fall into the lower end of its assigned variable rate range. However, NCH outpatient pharmacies were unable to use performance reports to improve performance and decrease DIR fees. DIR fees continued to increase over time, and the dollar amount of DIR fees for 2022 overall across the two outpatient pharmacies was approximately equal to 2 full-time pharmacists.
Background
Direct and indirect remuneration (DIR) fees have had a financial impact on pharmacies since their introduction with Medicare Part D in 2006. However, they have gained increasing attention in recent years due to pharmacies reporting increases in the amount of DIR fees being collected. The Centers for Medicare and Medicaid Services (CMS) reported that retroactive DIR fees increased by 107,400% between 2010 and 2020.1
DIR fees are payment adjustments made to reimbursement after the point of sale based on a pharmacy’s performance.1 Payers periodically issue a performance report that outlines metrics, such as adherence, gaps in therapy, and completion of comprehensive medication reviews (CMRs). Scores in each of those areas result in a summative performance score, and a brief summary of how that score influences DIR fees is included on the performance report.
Significant variability exists between payers, but often the DIR fee amount is a percentage of the ingredient cost (IC) paid that the payer retains for the time period that performance report is evaluating. If the pharmacy performs well compared with other pharmacies, the payer typically retains a smaller percentage of IC.
The methods payers use to calculate DIR fees and communicate them to pharmacies can vary significantly. Payers do not provide guidance on which patients need adherence interventions, gaps in therapies that need coverage, or CMRs that need to be completed. However, pharmacies may use third-party software to identify patients who need interventions.
Payers suggest that DIR fees incentivize improved patient care through a pay-for-performance model.2 However, many pharmacists argue that lack of information on patient-specific intervention needs, varying methods of how DIR fees are applied, unpredictability of other pharmacies’ performance, and the retroactive collection of DIR fees present a major challenge.2 As a result, it may be difficult for pharmacists to financially plan for DIR fees and truly use this model to improve patient outcomes.
Methods
We launched a quality improvement initiative at Nationwide Children’s Hospital (NCH) in Columbus, Ohio, that included a review of 15 total performance reports provided to NCH outpatient pharmacies (N = 2) every trimester between 2018 and 2022. These reports consisted of 4 separate plans administered by the same payer.
From those performance reports, we tracked changes in performance score from trimester to trimester and the resulting monetary impact on the pharmacies. The monetary impact was determined by the amount of IC being retained by the payer. In addition, we tracked the change in percentage of IC retained for brand name drugs and generic drugs (due to the variance in percentage of IC retained between these types of drugs). Finally, we tracked changes in the assigned variable rate range by the payer from trimester to trimester.
Because the performance reports did not identify specific patients impacting performance score and requiring interventions, we contacted the payer via email to request assistance identifying these patients. The payer could not identify specific patients and was unable to provide guidance other than directing us to a third-party software that might help identify patients. Cost barriers prevented access to this third-party software, so we explored the possibility of identifying these patients through our own reporting capabilities.
We ran a report through our electronic health record for patients for whom we filled prescriptions in the 6 months prior to February 2022 using information associated with the Medicare Part D payer’s 4 plans that we examined, bank identification number (RxBIN), processor control number (RxPCN), and group number (RxGrp). We categorized those patients as (1) patients who primarily filled prescriptions with NCH, (2) patients who only filled 1 to 3 prescriptions at NCH, and (3) patients who only filled prescriptions used as needed that originated in our emergency department or urgent care. We then performed a chart review for patients in category 1 (ie, primarily filled prescriptions with us) (N = 27) in an attempt to assess potential adherence, gaps in therapy, and any additional opportunities for intervention. However, the amount of time and labor required to acquire and sort the data in a way that could possibly help us identify interventions was deemed unsustainable, and no interventions were performed.
Statistical Analyses
We consistently noticed an increase in percentage of IC paid over time regardless of performance score. However, performance reports do not clearly define the formula used to determine how performance score influences percentage of IC retained, so we collaborated with a biostatistician to conduct statistical analyses to assess the relationship.
The outcome of interest was absolute reduction from the maximum possible range per trimester and calculated as maximum range, with variable rate meaning the higher the outcome number, the further it is from the maximum percentage in the variable rate range. General linear models were used to assess the relationship between score and plan as the predictors and the outcomes of reduction from the maximum range for generic and brand drugs. Model parameter estimates are reported along with 95% CIs. P values are 2 sided and tested at an α of .05. SAS version 9.4 (SAS Institute Inc) was used for statistical analyses.
Results
aThe variable rate range—assigned to the pharmacy by the payer—determines the percentage of ingredient cost retained by the payer.
aThe variable rate range—assigned to the pharmacy by the payer—determines the percentage of ingredient cost retained by the payer.
Both the percentage of IC retained and the performance score fluctuated by trimester. The lowest performance score recorded was 75.95% in trimester 1 of 2020, and the highest was 91.85% in trimester 3 of 2020. For brand name drugs, the lowest percentage of IC retained was 4% in trimester 1 of 2018 and trimester 3 in 2019, and the highest was 11.2% in trimester 1 and trimester 3 of 2022; for generic drugs, the lowest and highest percentage of IC retained was 6% and 25.2%, respectively. The lowest amount of IC retained for any trimester we reviewed occurred in Trimester 3, 2018. In that trimester, IC retained was $15,946 with a performance score of 76.25%. The highest amount of IC retained for any trimester we reviewed occurred in Trimester 1, 2022; in that trimester, IC retained was $102,881 with a performance score of 90.44%. The total IC was $336,507 and $968,063 for trimester 3 of 2018 and trimester 1 of 2022, respectively.
The variable rate range for brand name drugs increased from 3% to 5% in 2018 to 10% to 12% in 2022 (Figure 1) and from 5% to 7% in 2018 to 24% to 26% in 2022 for generic drugs (Figure 2). This means that the maximum percentage of IC paid retained by the payer would have been 5% for brand name drugs and 7% for generics in 2018. However, in 2022 the maximum would have been 12% and 26% for brand name drugs and generics, respectively.
From the report we ran to identify patients covered by the payer’s plans, we were unable to identify which patients most impacted the performance score and required interventions. Most patients in the report received 1 medication from NCH outpatient pharmacies or had visited our emergency department or urgent care for temporary medications. The others were specialty patients who already received an adherence assessment as part of our specialty pharmacy workflow. We were unable to confirm if patients who fall in those buckets impacted our scores, adding more uncertainty to what impacted our pharmacies’ performance score.
For generic drugs, performance score was significantly associated with the outcome (difference in the maximum range and the variable rate, P = .002). A 1-unit increase in score (1%) was associated with an 0.056-unit (95% CI, 0.023-0.090) increase in the outcome. Plan was not significantly associated with the outcome (overall P = .6937) (Table 1).
For brand name drugs, performance score was significantly associated with the outcome (difference in the maximum range and the variable rate, P < .0001). A 1-unit increase in score (1%) was associated with a 0.060-unit (95% CI, 0.041-0.080) increase in the outcome. However, plan was not significantly associated with the outcome. This was consistent across all 4 plans that we assessed for the payer (overall P = .3226) (Table 2).
An increase in performance score was significantly associated with a decrease in the percentage of IC retained within the assigned variable rate range. This means that when NCH pharmacies performed better, the percentage of IC retained fell within the lower portion of their assigned variable rate range. The variable rate was inversely related to performance and changed by 0.06% for every 1% change in performance score; this was consistent across all plans. For example, if the pharmacy’s performance score was 89% and the percentage of IC retained was 4.06%, an increase in performance score to 90% would decrease the IC retained to 4%.
Discussion
The trimesters with the highest performance score for the NCH outpatient pharmacies were not the trimesters with the lowest percentage of IC retained. This was due to the variable rate range increasing over time with no relationship to performance score (ie, the plans continued to increase the dollar amount of IC retained despite fluctuations in score). An increase in performance only drops a pharmacy into the lower end of its predetermined variable rate range. By 2022, the total dollar amount of DIR fees retained for the year for both pharmacies was approximately equal to the salary of 2 full-time pharmacists—who could contribute to additional patient care and support pharmacy operations.
The goal of this quality improvement initiative was to determine whether NCH outpatient pharmacies can use performance reports provided by a payer to improve patient outcomes, increase performance score, and decrease DIR fees. We also investigated whether dedicating pharmacy time and resources toward decreasing DIR fees is worthwhile to the pharmacy based on the pay-for-performance model that payers suggest. NCH outpatient pharmacies were not able to utilize the reports provided by the payer to decrease DIR fees, and the amount of time and resources necessary to read the performance reports, analyze them, and collaborate with a biostatistician to assess the relationship between performance score and percentage of IC retained made it difficult to justify allocating resources every day.
Our initiative had many strengths. We reviewed 5 years of performance reports, which allowed us to see the impact of time on the amount of DIR fees. In addition, NCH outpatient pharmacies include 4 pharmacies that handle a wide variety of patients, including specialty patients. Finally, we collaborated with a biostatistician for our statistical analyses to determine whether a relationship existed between performance score and DIR fees.
Limitations
Our project had several limitations. Because NCH is a pediatric institution, our patient population is primarily individuals younger than 21 years with Medicaid. Our Medicare Part D patient population is narrower than other institutions that primarily care for adults. In addition, we only assessed 1 payer, and results may vary from one Medicare Part D payer to another. The report we ran using RxBIN, RxPCN and RxGrp numbers resulted in only 95 patients enrolled with the Medicare Part D payer we examined, and only 27 of those patients primarily filled prescriptions at NCH pharmacies.
However, even 1 payer had a significant financial impact on our pharmacies in relation to total DIR fees. More quality improvement initiatives will have to be completed at institutions that care for adults to assess the impact of DIR fees on their outpatient pharmacies.
Finally, payers suggest pharmacies use a third-party software such as Equipp to increase performance score and decrease DIR fees. We were unable to use Equipp due to administrative and operational barriers at NCH. The cost of gaining access to Equipp for our outpatient pharmacies—in addition to the time and resources needed to implement it into our patient charts—outweighed the potential financial benefit from decreasing DIR fees. In addition, collaborating with a biostatistician is a resource most pharmacies do not possess.
Conclusions
Many published articles address DIR fees, their increase over time, and their financial impact on pharmacies.3,4 In addition, many professional pharmacy organizations such as the American Pharmacists Association, American Society of Health-System Pharmacists, and National Community Pharmacists Association have identified the need for transparency and reform.5-7
To our knowledge, this is the first quality improvement initiative to examine performance reports, track the increase of DIR fees over time, and attempt to understand the reasoning behind the increase.
Based on the data we collected and analyzed, NCH outpatient pharmacies did not find the intended value in the pay-for-performance model. Instead, the increase in DIR fees over time put financial strain on the pharmacies.
Alexander Swick, PharmD, MBA, is a manager of outpatient pharmacy services and the community-based pharmacy residency program director at Nationwide Children’s Hospital in Columbus, Ohio.
Omar Hajmousa, PharmD, is an outpatient pharmacist at Nationwide Children’s Hospital in Columbus, Ohio.
Mahmoud Abdel-Rasoul, MS, MPH, is a principal biostatistician at the Center for Biostatistics at The Ohio State University in Columbus, Ohio.
The retroactive nature of DIR fees continues to be a challenge because pharmacies cannot plan for the amount of DIR fees that will be taken back. In addition, methods of DIR fee application are still inconsistent, and payers have not been able to provide a robust way to identify which patients could benefit from pharmacist intervention to provide better outcomes for their patients.
In 2022, the CMS issued a final rule regarding the application of DIR fees. Beginning in 2024, DIR fees would be applied at the point of sale, creating consistency and more transparency for patients and pharmacies. For example, according to the rule, “For a drug that the sponsor has agreed to pay the pharmacy $100 at the point of sale, the pharmacy’s final reimbursement under this arrangement would be: (1) $95 for poor performance; (2) $100 for average performance; or (3) $101 for high performance.”1
This model allows pharmacies to financially plan for DIR fees and the loss in reimbursement amount. However, pharmacies remain unsure whether the amount of DIR fees taken back will continue to increase over time and whether these changes will contribute to clarifying inconsistencies noted between payers and plans.
REFERENCES
Disclosures
Alexander Swick, PharmD, MBA, manages outpatient pharmacies affected by direct and indirect remuneration (DIR) fees.
Omar Hajmousa, PharmD, is an employee of outpatient pharmacies affected by DIR fees and attended the 2023 Ohio Pharmacists Association Annual Conference & Trade Show and the 2023 & 2024 Ohio Pharmacists Association Student Pharmacist Legislative Day.
