The concept of Pay for Performance as it pertains to healthcare is simple: save the system money by performing and receive a financial reward. Fail to perform and you will reap the financial consequences. Some models even require a financial stake from the provider before they are allowed to participate. An entry fee, as it were. The potential rewards, if the provider meets performance goals, should offset or exceed the initial stake. Some companies are apparently considering the DIR fee as a form of pay for performance. I disagree, and as proof, I offer a couple of examples. If you need a refresher on DIR fees, read DIR Fees–Why are Pharmacies in the Middle?.
CVS Caremark 2016 DIR
This summer, the CVS Caremark DIR fee schedule for 2016 began to become tangible for pharmacies all over the country as DIR fees for the first 4 months of the year were calculated and the DIR fees started to be withheld. For those unfamiliar with the current Caremark DIR program, CVS has tied the DIR fee to pharmacy performance in the EQuIPP measures. They call this a variable rate DIR, with performing pharmacies receiving a discount on the DIR rate.
To be more explicit, these plans take an additional 3% to 5% back from the pharmacy for every Rx they supply the plan’s patients. A high performing pharmacy has to pay back 3%, a lower performing pharmacy pays back as much as 5%.
Consider my pharmacy. We were in the top 20% of all pharmacies nation wide for the entire first 6 months of 2016. This puts us at the bottom of the variable rate, so we have to give back only 3% of what we were paid by CVS Caremark. This amounts to tens of thousands of dollars taken from sales with an already thin margin allowed by the plan. The reward for being a top performer is to pay the plan less for the privilege of taking care of their patients. This is not a performance reward.
CVS Caremark would undoubtedly counter this statement, stating that they do reward performance through a different program. This program does reward performance, but the size of these rewards is merely a footnote. My pharmacy’s reward for this program was less than $2000 for all of 2015, and we maxed out every clinical category. By way of comparison, the $2000 in performance reward for the entire year is dwarfed by the estimated $60,000 per year in DIR fees for our pharmacy will pay back to CVS / Caremark. For CVS / Caremark, quality and performance, as a priority, do not appear to be in the same league as lowering the price.
Humana 2017 DIR
Recently, Humana revealed its 2017 DIR program. It bears some resemblance to a pay for performance program, but it, too, falls short. Like CVS’s 2016 plans, the 2017 Humana DIR fee is also tied to EQuIPP measures. The Humana DIR concept this: each qualifying prescription (falling in an EQuiPP measure) will be charged a $5 DIR fee. If a pharmacy maintains an EQuIPP score in the top 50% for the matching EQuIPP measure, they will receive $2 back. If the pharmacy maintains an EQuIPP score in the top 20%, they will receive all $5 of the DIR back plus an additional $1 reward.
On the surface, the Humana plan for 2017 is actually a Pay for Performance version of a DIR. Unfortunately, doing the math shows that the DIR is really just a DIR. Like a casino, Human has stacked the odds in its favor. Consider the math:
Let’s look at 1,000,000 qualifying claims — Humana would withhold $5M in DIR fees up front. To simplify the illustration, we will make two assumptions. These assumptions do not impact the actual statistical evaluation over all qualifying prescriptions, EQuIPP measures and pharmacies. Assume…
- that all pharmacies fill the same number of claims
- that all pharmacies perform identically for all three EQuIPP criteria
Now because Humana is using a percentile based comparison thru Equip we can state:
- 50% of all pharmacies will see $0/claim back (they fell in the lower 50% on all three measures). Based on the assumptions above, this to be half of the claims (500,000 claims)
- 30% of pharmacies will receive $2/claim (these pharmacies fell between 50% and 80%) Again, based on the assumptions above, is 30% of claims (300,000 claims), so Humana returns $0.6M ($600,000) back to the pharmacies.
- 20% of pharmacies will receive $6/claim. This is 20% of all claims, so Humana gives back $1.2M
In the end, Humana holds $5M and gives back $1.8M. So Humana keeps $3.2M per 1,000,000 claims as shared savings.
Now it is possible that several larger pharmacies could fill a lot of Humana claims and simultaneously and hit the top end on all EQuIPP measures. If this happened, Humana could end up paying out more. If the highest performing pharmacies represented not (as simplified) 20% of claims, but 50% of qualifying claims (this is very unlikely, an extreme example), then the reward paid out would be $3M per million claims. If remaining pharmacies receiving rewards ($2 per claim) represented an equally disproportionate 40% of claims filled for patients, then Humana would pay out $800K per million claims. For those doing the math at home, this leaves the bottom 50% of pharmacies filling only 10% of all qualifying Human claims. Despite this unlikely distribution of reward dollars, Humana is still retaining $1.2M in DIR fees per 1,000,000 claims. Once again, quality and performance take a back seat to price.
So, compared to this year’s CVS Caremark DIR schedule, the 2017 Humana DIR at least resembles a pay to perform format. The reality is this, however: until the Prescription Drug Plans have their own skin in the game with respect to total health spend for these patients, there is no incentive to pay pharmacies for quality. For the PDPs, the formula will remain the same: pushing pharmacy reimbursement lower makes the PDP money. Without significant change from Medicare and corporate America, quality will continue to take a backseat to cost.
Recall the old saying: you get what you pay for. Well today, the PDPs are focused on cost. Cheaper is better. The real question will eventually be asked, can we continue to afford to ignore quality in healthcare?
