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Pharmacy DIR (direct and indirect remuneration) is a value-based tool that’s getting a lot of buzz on Capitol Hill and at CMS. To better understand Pharmacy DIR and how it affects Medicare beneficiaries, JC Scott talks with Dr. William Fleming, Segment President of Pharmacy Solutions and Chief Corporate Affairs Officer for Humana, Inc.
JC Scott, President & CEO of the Pharmaceutical Care Management Association, discusses the latest trends, public policy developments, and political challenges impacting drug pricing and healthcare.
You'll hear the nation's top thought leaders, policy experts, and political analysts on topics like how employers, unions, and others use Pharmacy Benefit Managers (PBMs) to drive value for their members in the face of growing healthcare costs. You'll also learn about advancements in gene therapy, biologics, other cutting edge therapies, and the patient benefits and cost challenges that come with them.
The Pharmacy Benefit will also analyze the latest news from inside the industry and give you an educated perspective on where things currently stand and where we think they're headed.
JC Scott (00:08):
Welcome to The Pharmacy Benefit, a podcast that highlights the role of PBMs in serving millions of patients and consumers throughout the country. I'm JC Scott. For those who have joined us before for an episode of The Pharmacy Benefit, you know that we use time together to drive a better understanding, some of the biggest healthcare issues of the day, especially those related to access to prescription drugs, affordability, and improving value for patients.
JC Scott (00:32):
We aim to break down the acronyms and help get to the real meaning of healthcare topics. And that's what we're hoping to do today by discussing an issue that gets talked about quite a bit on Capitol Hill and at CMS, a value-based tool known as pharmacy DIR. Now, most people don't know what pharmacy DIR is or how it helps Medicare beneficiaries. So today I'm joined by a guest, who's going to help us understand it. Dr. William Fleming is a pharmacist trained at the University of Kentucky, College of Pharmacy, who currently serves as the segment president pharmacy solutions and chief corporate affairs officer at Humana. William is also currently serving as chairman of the board here at PCMA. William, welcome to the pharmacy benefit.
Dr. William Fleming (01:12):
JC, thanks for having me.
JC Scott (01:13):
So let's just start with the real basics. What is pharmacy DIR?
Dr. William Fleming (01:17):
Well put simply, JC, it's a value-based contract. When we set up our pharmacy networks, one of the things that we've taken at account, is how we bring pharmacists into that care continuum so that they can engage in a way that will improve health, improve quality. Pharmacy DIR, which is also known as direct and indirect remuneration, which is a technical term in this CMS vernacular, is the true mechanism by the way we do that. How ultimately it works, is the way that we enter our contracts with pharmacies. We include upside and downside incentives around pharmacy performance.
Dr. William Fleming (02:01):
Performance is typically linked to things like medication adherence for patients who have chronic conditions, as well as making sure patients are on certain treatments. If they have certain conditions like statins and people with diabetes. From there, any of the savings that are generated through these value-based contracts are reinvested in the Medicare part D benefit through this DIR mechanism. And the DIR mechanism serves to lower the premium side of what a member pays in their part D benefit, whether it's PDP and the standalone PDP product, or the more integrated Medicare advantage with part D benefit.
JC Scott (02:43):
So you're right, the full name is quite a mouthful. Instead of using the acronym, what should we be calling this? Should we be saying, value-based contracting with pharmacies?
Dr. William Fleming (02:52):
JC. I really do think of it as value-based contracting. Certainly it's got this technical term of DIR, but it truly is value based contracting, and really it's the pharmacy side of what already happens on the medical side. And the medical side, we have a whole realm of value based contracts with providers, where they have upside and downside incentives to really improve quality and outcomes, and candidly engaged differently with that patient population.
Dr. William Fleming (03:22):
For this pharmacy DIR, it really is a value based contract. It's our opportunity. We believe to engage differently with the pharmacist community that gives them the incentives and the behavior change that inspires them hopefully, to do things around medication adherence and do things around making sure people avoid adverse events or that they can engage as appropriate. On the medical side, for example, at Humana, 67% of our Medicare Advantage members seek care from primary care physicians, so are practicing in a value-based way.
Dr. William Fleming (04:01):
When I think about the drug manufacturers, we have value-based contracts there where we've got over 50 value-based initiatives trying to hold the manufacturers accountable, and frankly, the medication for doing what it's intended to do. This value-based contract and pharmacy is another part of that supply chain that where we really want to try to genuinely improve health outcomes for the people we serve.
JC Scott (04:25):
And I want to spend a minute talking about how it does improve those outcomes and what you've seen in real world experience, but just sticking with the mechanics for a second. Let's say I'm JC's independent pharmacy. I often go down the street here in Arlington to a place on Lee highway, an independent pharmacy for the last two years, getting my COVID testing done, because they've been the ones that have had appointments. So right, they're playing an important role in the community. Let's say my pharmacy wants to be a part of the Humana network. Walk me through what happens, am I negotiating with you on a contract? What does that look like? Help me understand the mechanical aspects of this.
Dr. William Fleming (05:01):
We engage with the pharmacies. We have over 60,000 on our network. So there's less pharmacies that aren't in our network than our, because we got a lot of pharmacies in the network. But the mechanics would be to engage in trying to provide this clinical upside. And if you're willing to do that, we are going to have a more aggressive contract on the front end, because we've got to supply network. We got to be able to make cost affordable for the people we serve. But importantly, we know that pharmacists want to do good things. And the act of putting pills in bottle, you could argue that is becoming a commodity of source. Now that we have 90% generic dispense rates.
Dr. William Fleming (05:42):
And so the opportunity to earn money back and actually make more than you otherwise would, is the true upside around this. And the ability to use your clinical engagement and drive it in that way is really what we're going after. And so this does give the pharmacies the ability to engage with us, to review those contracts and to see if they're willing to step into how they want to operate their pharmacy practice. It starts with the contract, so they got to negotiate with us to get that in place. But once they do, then it's really on the pharmacies to adjust their practice, to deliver these important quality metrics that they can use.
JC Scott (06:22):
So the way it's supposed to work is you're talking to them upfront about the terms. I'll just choose one in particular, right? Let's say how well they do on keeping patients adherent to their drugs, meaning keeping people sticking with taking their medications, which involves communicating with the patient, counseling the patient, all the things that a pharmacist might do. And if they hit certain metrics on adherence, helping patients, then they have the opportunity for that financial upside. And they also bear the risk of financial downside. If they're really doing a poor job,
Dr. William Fleming (06:52):
That's exactly it. And they're able to see their data through the pharmacy qualities systems infrastructure. We have a third party who's really the source of truth for what the data says. And we report our data into it, and the pharmacists actually have a portal they can go into and they can see how they're performing for themselves. They can also see how they're comparing against their like peers in their local area.
JC Scott (07:15):
So you're providing them with tools to keep up with how things are going. So that in the perfect world, they're not surprised when you come back to talk to them about performance.
Dr. William Fleming (07:25):
Listen, there will be nothing worse than to not know how I'm performing and whether I am in fact, performing at my peer level and having that data and having access to it. If you just use a tool, you can see whether you're doing a good job or not, relative to your peers in market.
JC Scott (07:40):
So historically, how well has this worked? What are you seeing in terms of the benefits for patients for Medicare beneficiaries in the real world now that you've been using this tool?
Dr. William Fleming (07:51):
Well, JC, it's a good question. We have seen medication adherence improve dramatically and today we're approach the high 80% range of absolute number in terms of people who have access to their medication on time. That number since 2015 has gone up, probably at least it depends on the disease, but at least 7% and some diseases and as high as, 10 to 11% in others. And so like absolute point. And so seeing that work and seeing how it showed itself, it does demonstrate that if we get the right incentives in place, we get people thinking about it and we get them to really adjust their practices. They can do good things for the population.
JC Scott (08:34):
So not to get too deep into the weeds, William, but there is a new rule that came out of CMS, not too long ago, that proposes to make some changes to the way that that pharmacy DIR works in Medicare. Could you just at a really high level, tell me why you're concerned about the type of change that's under consideration.
Dr. William Fleming (08:53):
Well, we fundamentally believe in the value of this value based contract, and we believe that if the change goes through as is, we could in theory still do a contract, but it would only be upside. And we've seen enough of the other value based contracts that have happened on the medical side and others that if all you have is upside and there's no downside, you don't get that engagement. And it's going to be a fundamental challenge, but more importantly, and equally as important is these dollars in how it's being proposed will serve to raise member premium members. Members premiums will go up. Secondly is when you think about all of the contracting, you mentioned contracting earlier, the payer community and PBM community, they're going to have to go out and recontract all those pharmacies with a new model. And lastly, I would just say that within that new model, it's going to be challenging at best to get the level of quality improvement that we've seen when all you have is upside incentives.
Dr. William Fleming (09:58):
There is countless demonstrations of a lot of these value based things in the provider community, where on the upside it's incremental at best. And you wouldn't be talking about 10 point improvements over just a few short years, like we've seen in this program. So concern that you might be limited it in the way you can use this to help patients on the quality side and concerned about the financial impact, because I think what CMS themselves has projected is that there be at least a 5% increase in Medicare premiums. And we all know seniors on fixed incomes already dealing with inflation and other areas of the economy. It's not a great time for that kind of an increase in premiums.
Dr. William Fleming (10:37):
That's exactly right, because premiums will go up and there's no guarantee that these dollars will in fact make a point of service through that negotiation that we will all have to have with the pharmacies themselves.
JC Scott (10:50):
Last question for you, William. Obviously pharmacies play an incredibly critical role, helping patients to get access to their prescription drugs. They've been on the front line during the pandemic, but as you pointed out a minute ago, there are external factors and evolution within that business model. And you've been around the pharmacy game for a number of years. What do you see as the future of pharmacy and how could retail pharmacy sort of best position themselves to deliver value in that future
Dr. William Fleming (11:15):
Boy that's a whole podcast to itself, but just at a macro level and a quick couple thoughts on this. The pharmacy, as I think about the pharmacies themselves, they've got a lot of dynamics that are different today than they were 10 years ago, and certainly 20 years ago. I mean, who would've thought today that we would see 90% generic dispense rates. Who would've thought today, there would be the upside around some of these opportunities around value-based contracts, medication therapy management, adverse events, and just the clinical innovations that we can bring forward.
Dr. William Fleming (11:49):
Yeah, as I think about the pharmacies, I think they do have a challenge, just in their business model. 90% of the work, that's the generics represents $20 to $25 of revenue. And so as I think about the future, that's a challenging proposition. To do all the things they do, make the wages they want to make, pay the pharmacist, still making a hundred plus thousand dollars a year what they want to be paid and do that off the work of generic drugs.
Dr. William Fleming (12:16):
And so as I think about the future, pharmacists are going to have to engage in value. They're going to have to engage in clinical programs. They're going to have to be much, much more than pills and bottle. It's time for the pharmacist community to really demonstrate that, the opportunity is there, several are showing up, but broadly we're going to need to see more of it. I think for the pharmacy community to thrive in the way that has thrived in the past. And the combination of clinical programs, the combination of embracing these types of value-based programs, the combination of deeper clinical engagement. I think that's where their business model is going to have to forward around.
JC Scott (12:54):
And it sounds like PBMs through the use of these value based arrangements and other interactions with the pharmacies, want to help pharmacies to make that evolution.
Dr. William Fleming (13:02):
That's exactly right. We have every incentive to want to do this work, because as much of the work that is now being integrated, pharmacy's part of the supply chain. It's not the only part of the supply chain, but it's an important part. You don't have refills on MRIs, you don't have refills on CAT scans, but you do have refills on your meds. And we got to make sure people are adherent. We got to make sure we're avoiding the events. We got to do all the right clinical quality things. And if we do those things, that delivers value back into the system and then the pharmacies can get paid for it. And that's the models that we're kind of bring forward. And that this whole DIR thing, as we've talked about really tries to eliminate.
JC Scott (13:41):
William, thanks so much for a great conversation in helping our listeners and me better understand a complicated topic. I appreciate you joining us today.
Dr. William Fleming (13:48):
Thanks for the time, JC.
JC Scott (13:50):
And thank you to all of you for listening. I encourage you to subscribe to The Pharmacy Benefit and download all our podcast episodes. You can do that on Google podcasts, apple podcast, Spotify or wherever you find your favorite podcast. I'm JC Scott. Thanks for joining me.