Pharmacy Payment Challenges in 2024
Decoding the Decline in Reimbursements
By Mark Fulton, PharmD, MBA, BCNSP, NSC-II
The arrival of 2024 has brought with it a complex web of challenges in the realm of reimbursement. The landscape has shifted dramatically, and the decline in reimbursements is a key concern for pharmacies nationwide. In this article, we will unravel the intricacies behind this decline, exploring the impact of recent CMS rules, the removal of the AMP rebate cap, and the evolving strategies of pharmaceutical manufacturers. We'll also discuss how pharmacies can navigate these challenges and explore potential solutions to safeguard their financial stability.
One major factor contributing to the decline in pharmacy reimbursements is the Centers for Medicare & Medicaid Services (CMS) rule prohibiting retroactive Direct and Indirect Remuneration (DIR) fees, which became effective on January 1st. This rule disappointed many pharmacy advocates, who had initially hoped that CMS would eliminate DIR fees. Previously, pharmacies faced retroactive DIR fees, sometimes many months after submitting a claim. Often, these fees are based on “quality measures” that are unrelated to dispensing or outside the pharmacy’s control.
The new rule aims to bring transparency and fairness to reimbursement processes as payers must now apply DIR fees at the point of sale. While this is good news for patients, who may realize lower copayments, pharmacies will receive smaller reimbursements upfront as prices decline. Pharmacies now find themselves in a challenging position, dealing with lower reimbursements at the time of claim submission, while still paying DIR fees from the previous year. Many payers are still assessing DIR fees from 2023 claims. This creates a scenario of “double-dipping” by third-party payers, straining pharmacy balance sheets.
While LTC pharmacies typically avoid most DIR fees, they are not immune to the overarching decline in reimbursements. The unique challenges faced by LTC pharmacies, compounded by the evolving reimbursement landscape, require strategic adaptation to ensure continued financial sustainability. The growing segment of home care patients adds another layer of complexity to pharmacy reimbursements. These patients are not typically included in the CMS definition of LTC, but DIR fees may still apply, contributing to the overall decline in reimbursement dollars.
AMP Adjustments - A New Hurdle for Pharmacy Reimbursement
Compounding this downward pressure on prices is another new CMS rule, also beginning on January 1st, which removes the cap on rebate payments manufacturers must pay to Medicaid. Previously, these rebates were capped at 100% of Average Manufacturer Price (AMP). However, the new CMS rule removes this cap, allowing for larger rebates in situations where the price of the drug increases faster than the rate of inflation. The intent behind this move is to de-incentivize price increases, but manufacturers' responses vary. Some opt to reduce drug prices, leading to decreased reimbursement for pharmacies. This is the case with Eli Lilly and several of its insulin products. Some manufacturers have taken a different approach, notably GlaxoSmithKline’s withdrawal of its brand Flovent inhaler from the market, replacing it with an authorized generic, resulting in formulary issues and access challenges for patients.
But the situation is not entirely hopeless. LTC pharmacies have proven to be innovative, adaptable, and highly capable of dealing with shifting market forces. Here are a few potential strategies for withstanding the reimbursement challenges of 2024:
Strategies for Withstanding the Reimbursement Challenges
Find Additional Revenue Opportunities: Pharmacies can explore additional revenue streams, such as vaccines, Durable Medical Equipment (DME), and value-based offerings. Diversifying services can help offset the impact of declining reimbursements.
Consult a Financial Planner to Optimize Business Strategy: Seeking advice from a financial planner can help your pharmacy make sound business decisions and build a solid roadmap to guide operational strategy. Understanding the financial landscape, identifying cost-saving measures, and exploring new avenues for revenue generation can strengthen a pharmacy’s financial resilience.
Stay Informed: Given the dynamic nature of the healthcare industry, staying informed about regulatory changes, reimbursement policies, and industry trends is paramount. Proactive engagement with partners, vendors, and professional organizations allows pharmacies to stay informed and swiftly respond to changing conditions.
Pharmacy reimbursements in 2024 are navigating a daunting terrain influenced by CMS rules, AMP rebate cap removal, and evolving manufacturer strategies. Managing these economic concerns while maintaining high-quality care and complying with regulatory requirements is a complex challenge for LTC pharmacies. To address these challenges, strategic financial planning, operational efficiency, effective management of resources, and staying informed about industry changes are essential. As reimbursements continue to adjust in response to market and regulatory forces, pharmacies can secure their financial stability through awareness, resilience, and strategic partnerships.
References:
https://www.pbahealth.com/elements/long-term-care-keeps-this-pharmacy-profitable/ https://www.frierlevitt.com/articles/post-dir-planning-for-independent-pharmacies-the-last-gasp-of-dir-and-how-to-protect-your-pharmacys-cash-flow-in-2024/ https://www.milliman.com/en/insight/long-term-care-pharmacy-quality-care-financial-sustainability https://seniorcarepharmacies.org/national-ltc-pharmacy-advocacy-group-disappointed-cms-failed-to-eliminate-dir-fees/ https://www.nacds.org/dir-fees/ https://www.pharmacytimes.com/view/dir-fee-reform-will-have-repercussions-in-2024-but-pharmacists-can-prepare