Dear Administrator Brooks-LaSure:
On behalf of the Board of Directors of the Community Oncology Alliance (“COA”), we are writing to request that the Centers for Medicare & Medicaid Services (“CMS”) revise the CY 2023 Medicare Advantage and Part D Proposed Rule (CMS-4192-P) (the “Proposed Rule”) being finalized to address the Pharmacy Benefits Manager (“PBM”) Express Scripts, Inc. (“ESI”) recent January 1, 2023 Amendment to the Express Scripts, Inc. Pharmacy Provider Agreement (the “ESI Program”).1 The ESI Program, which was introduced recently by ESI in reaction to the Proposed Rule addressing the problems with PBM direct and indirect remuneration fees (“DIR Fees”) charged to pharmacy providers, confirms exactly what COA expressed in our March 7, 2022 comment letter (“Comment Letter”) (attached) to you regarding the Proposed Rule; namely, that PBMs would simply ratchet down reimbursement further to pharmacy providers, including retail pharmacies and community oncology, urology, and other medical practices with pharmacies and/or in-office dispensing facilities (collectively, “Pharmacy Providers”), and would concoct additional fees to charge to Pharmacy Providers. Unfortunately, what we said PBMs would do, ESI has already done, even before CMS has finalized the Proposed Rule!
ESI has amended its broadest Medicare Part D network such that, among other terms, every network provider will receive a reduction in reimbursement of at least eight percent of current rates, according to our analysis of the new ESI Program versus current ESI reimbursement rates. This is equivalent to every pharmacy provider receiving the lowest possible score in all performance metrics under ESI’s current DIR Fee program. In an economic environment where a mere one percent reduction in reimbursement is meaningful as Pharmacy Providers struggle to remain financially viable in order to stay in business, we urge CMS to understand that an eight percent decline is massive. In fact, many (most) independent retail pharmacists will be reimbursed at rates by ESI that are far from “reasonable and relevant” because they will be below drug acquisition cost.2 The ESI Proposal will put more pharmacies out of business, contributing to the pharmacy “deserts” popping up all over the country. Once again, the COA Comment Letter predicted that, in reaction to the Proposed Rule, PBMs and their Medicare Part D Plan Sponsors (“Plan Sponsors”) would effectively end retroactive DIR Fees and substantially reduce reimbursement rates to the worst rates available under the existing DIR Fee programs.
As you know, COA is an organization dedicated to advocating for the complex care and access needs of patients with cancer and the community oncology practices that serve them. COA is the only nonprofit organization in the United States dedicated solely to independent community oncology practices, which serve the majority of Americans receiving treatment for cancer. COA’s mission since its grassroots founding close to 20 years ago has been to ensure that patients with cancer receive quality, affordable, and accessible cancer care in their own communities where they live and work, regardless of their racial, ethnic, demographic, or socioeconomic status. However, cancer patients’ access to timely treatment with oral cancer drugs is threatened by the ESI Proposal because oncology practices will not be able to dispense these therapies at rates below drug acquisition cost. But that is exactly the ESI game plan – bleed Pharmacy Providers dry so that the only option will be to use ESI’s wholly-owned Accredo specialty and mail order pharmacies.
As COA expressed in the Comment Letter, achieving COA’s mission requires federal policies to correct misaligned financial incentives that drive spending and costs for Medicare beneficiaries, who constitute some of the most vulnerable cancer patients. COA’s Comment Letter expressed concern that the Proposed Rule does not go far enough to protect Pharmacy Providers, and the ESI Program has justified the concerns we expressed in the Comment Letter. The top six PBMs that control 96 percent of the prescription drug market3 are masters at exploiting loopholes in their quest for profits to the detriment of Medicare beneficiaries and other Americans under medical care. That is exactly what ESI has done in introducing this new ESI Program, even before CMS has finalized its Proposed Rule.
As COA predicted, ESI has simply substituted current retroactive DIR Fees for outsized “administrative fees” in the ESI Program. Moreover, ESI has drastically lowered reimbursement to Pharmacy Providers, supporting COA’s warning that the top PBMs’ unchecked market dominance has provided them with leverage to force Pharmacy Providers to accept extortionate reimbursement in order to continue providing pharmacy
care to their patients. This lower reimbursement, which fails to account for Pharmacy Providers’ acquisition cost and cost to dispense, is especially harmful in specialty dispensing – including oncology and urology providers treating cancer patients – where the margin between acquisition and net cost to dispense is already razor-thin.4 Additionally, as COA warned, ESI imposes pharmacy performance “quality metrics” on Pharmacy Providers that are not relevant and appropriate to all Pharmacy Providers, including providers treating cancer patients.
Notably, the ESI Program drops the pretense of applying performance “quality metrics” to all Pharmacy Providers. The ESI Program imposes new fees that functionally operate as a fine for participating in Part D networks. In the ultimate in extortion, ESI has moved directly to an impermissible fine. Pharmacy Providers are no longer expected to participate in a game they cannot win; they are simply expected to pay ESI to participate in Part D Plans while at the same time losing money caring for a vulnerable patient population. This pattern is not sustainable. We predict that a natural consequence of these new below-cost reimbursement rates will be a massive migration of pharmaceutical cancer therapy from COA’s providers to ESI’s wholly-owned Accredo specialty and mail order pharmacies. This is materially detrimental to CMS and to Medicare beneficiaries and further concentrates power in the big six PBMs.
In this letter, we provide specific comments, concerns, and recommendations regarding the ESI Program, which we expect other top PBMs to mimic in some fashion, and how the Proposed Rule being finalized needs to be modified to stop PBMs from further threatening the existence of Pharmacy Providers. CMS needs to understand that the very existence of independent pharmacy is at stake. The agency must do more and needs to do more, as COA detailed in its Comment Letter and again in this letter in reaction to the ESI Program.
This letter will first discuss the details of ESI’s Program. It will then describe how the Proposed Rule fails to address each of the following issues COA previously identified in its Comment Letter and will reiterate and elaborate upon COA’s previous recommendations to address these issues:
- Inclusion of Pharmacy Price Concessions in Negotiated Price
- Proposal to Provide Lowest Possible Reimbursement Amount at Point-of-Sale
- Clarification of Pharmacy Administrative Service Fees and Price Concessions
- Clarification on Any Willing Pharmacy Law
- Enhancements to CMS Dispute Resolution Process
- Updated Pharmacy Quality Measures
The ESI Program
ESI provided notice of its new 2023 network program to Pharmacy Providers on March 17, 2022.5 The ESI Program is offered on an “opt-out” basis, which in most cases must be within ten days.6 Accordingly, even if Pharmacy Providers could risk abandoning servicing their patients covered under the ESI Program by declining the contract, it is already likely too late for most to opt out. Of particular note, the ESI Program is offered on a “take-it-or-leave-it” basis as the notice provides no room for negotiation, as shown in the language below directly from the ESI Program.
We note ESI’s admission that this new ESI Program is a reaction to the Proposed Rule and blatant lie that it is intended “to offer participating Providers the same financial value” offered under ESI’s current Broad Part D Network. In fact, the ESI Program does not offer “the same financial value;” instead, the reimbursement rates in the new program are lower than the worst rates after accounting for DIR Fees in ESI’s current Broad Part D Network.
The Program modifies ESI’s current Broad Part D Network in two ways: (1) it drastically reduces pharmacy reimbursement; and (2) it imposes a mandatory fee on every drug that apparently provides some, but not all, Pharmacy Providers with the opportunity to earn back all or a portion of those mandatory fees. Once again, we told you so!
The above7 reveals ESI’s extortionate rates, which represent, in most cases, a reduction of at least eight percent in reimbursement for Pharmacy Providers. Contrary to ESI’s assertion that this preserves the relative value of its current Broad Part D Network, the Program essentially lowers reimbursement to all Pharmacy Providers to the average wholesale price (“AWP”) discount each Pharmacy Provider would receive if it performed in the lowest possible tier for every DIR Fee performance metric in each common “Network Protocol” ESI offers in its current Broad Part D Network. In addition to these low-ball reimbursement rates, ESI has also implemented a new Performance “Bonus Pool” plan meant to shift the cost of maintaining a performance network away from Plan Sponsors and onto Pharmacy Providers.
Under the ESI Program, ESI will charge every Pharmacy Provider a mandatory up to $0.75 “Bonus Fee” per drug claim. We highlight the “up to” language because ESI retains the right, at its own discretion, to arbitrarily decide whether a Pharmacy Provider is charged the “Bonus Fee” at all, leaving the door open for ESI to prefer some Pharmacy Providers, such as its Accredo specialty and mail order pharmacies, over Pharmacy Providers not corporate affiliated with ESI. ESI will then collect these “Bonus Fees” and place them into a network “Bonus Pool,” and some, but not all, Pharmacy Providers will have the opportunity to earn some or all of their “Bonus Fees” back. ESI is utilizing the following “quality metrics” in evaluating performance:
- Proportion of Days Covered (PDC) for Diabetes – Adherence for Diabetes Medications
- PDC for Hypertension – Adherence for Hypertension (RAS Antagonists)
- PDC for Cholesterol – Adherence for Cholesterol (Statins)
- Statin Use in Persons with Diabetes – SUPD
Every Pharmacy Provider that scores an average of four stars or higher in these categories is eligible to receive back a “Performance Award” of 100% of its “Bonus Fee.” However, the ESI Program does not detail how ESI will determine how many stars are attributable to a particular Pharmacy Provider; in fact, it states that ESI “Performance Award” payments will be calculated by ESI “at its discretion” – meaning, without any transparency or accountability. Thus, under the ESI Program, even Pharmacy Providers that might qualify for a “Performance Award” have no guarantee they will receive one, even if they are a top performer. ESI can
arbitrarily decide which Pharmacy Providers will receive a “Performance Award,” including ESI’s own Accredo specialty and mail order pharmacies, to the exclusion of competing Pharmacy Providers.
We note that oncology and urology practices, as well as other specialty practices, will be required to fund the “Bonus Pool” by paying per drug claim “Bonus Fees,” yet the “quality metrics” used to determine “Performance Awards” have nothing to do with cancer care. Measuring these practices’ ability to get cancer patients to adhere to taking cardiovascular and diabetes drugs is both irrelevant and inappropriate. However, this allows ESI “at its discretion” to, in essence, make up performance scores for these practices based on any “quality metrics” incidentally attributable to the practice. In the event the practice has no scores in any “quality metric” category the practice is not eligible to receive any “Performance Award.” Thus, for specialty providers, such as cancer and urology practices, where the “quality metrics” are not relevant, it’s simply another rigged “Three-Card Monte” game where the PBM always wins.
The ESI Program demonstrates how PBMs will continue to game the system until CMS takes immediate action.
In the remainder of this letter, we set forth each issue COA previously highlighted in our Comment Letter, how ESI has exploited the vulnerabilities in the Proposed Rule through the new ESI Program, and we both repeat and reinforce our suggested changes to strengthen the Part D Program to better protect Medicare seniors and other beneficiaries by supporting Pharmacy Providers before it is too late.
Inclusion of Pharmacy Price Concessions in Negotiated Price
In our Comment Letter, COA expressed our belief that the provision in the Proposed Rule requiring that all Pharmacy Price Concessions be reflected in the Negotiated Price that Plan Sponsors and PBMs pay to Pharmacy Providers does not go far enough in addressing the financial solvency of Pharmacy Providers. We explained that COA supports accounting for pharmacy price concessions in the Part D negotiated price as it could also lower patient out-of-pocket (“OOP”) costs for high-cost specialty drugs to treat cancer and other complex diseases by eliminating the ability of Plan Sponsors and PBMs – often part of the same corporation – to account for pharmacy price concessions as direct and indirect remuneration (“DIR”). However, COA remained concerned that the top three PBMs, accounting for 80 percent of prescription drug activity8 would seek alternative ways to leverage their market dominance with Pharmacy Providers and make up for lost DIR Fees by engaging in escalating anti-competitive price behavior. This concern is exemplified in the ESI Program.
While we expressed appreciation for the Biden Administration’s focus on promoting competition in the prescription drug market discussed in the Executive Order Promoting Competition in the American Economy,9 we cautioned the Proposed Rule falls short of fully serving that Order. Indeed, while CMS believed the Proposed Rule would address competition issues among Plan Sponsors, the ESI Program confirms that the Proposed Rule fails to address the anti-competitive results of vertical integration among payers, where Plans Sponsors, PBMs, and retail and specialty pharmacies are vertically integrated under a single corporate structure. ESI’s Program precisely embodies COA’s warning on this issue as ESI is using its oligopoly market clout to change contract terms without any ability of Pharmacy Providers to negotiate terms.
The ESI Program reimbursement rates and fee structure demonstrate that ESI has abandoned all pretense of presenting fair, “reasonable, and relevant” reimbursement to Pharmacy Providers. The “Any Willing Provider Law” (“AWP Law”) and CMS’s Rules and Guidance implementing the AWP Law require reimbursement to be “reasonable and relevant,”10 yet ESI has clearly ignored this law, openly violating CMS’s rules with unbridled impunity. We question whether ESI believes they are even bound to follow the AWP Law.
COA again implores CMS to address overall pharmacy underpayment concerns and ensure that terms, conditions, and quality performance metrics are “reasonable and relevant,”11 and address loopholes in Plan Sponsors’ and their PBMs’ interpretations of network adequacy.12 We also repeat our request that CMS investigate how PBMs set reimbursement rates, especially for specialty drugs.13 For example, do PBMs conduct industry drug acquisition cost surveys to understand the impact that reimbursement at AWP – 26.30% will have on pharmacy viability? What facts do Plan Sponsors, especially those owned by or affiliated with PBMs, consider in the actuarial bids to CMS for the Part D business?
Reimbursement rates play an essential role in both access to pharmacies, especially in rural areas, and drug costs for Americans. Underpayment increases the concentrated power of PBMs and PBM-owned mail and specialty pharmacies, which causes widespread harm by further consolidating power into the three top PBMs, their affiliated Plan Sponsors, and their wholly-owned or corporate-affiliated pharmacies. Additionally, PBM-owned mail and specialty pharmacies, because of their near monopolistic market dominance, are able to buy drugs from manufacturers at discounts not available to independent pharmacies. CVS Health’s PBM Caremark controls 33 percent of the prescription drug market, while Cigna’s PBM ESI controls 26 percent of the market.14 Thus, the purchasing power behind their mail order and specialty pharmacies is enormous. We urge CMS to view “reasonable” reimbursement rates as an urgent need to stabilize the industry from a competition perspective and as an essential element of the Proposed Rule.
CMS has long viewed itself as having the ability to undertake action regarding the definition of “negotiated prices.”15 ESI’s Program demonstrates that PBM prices are no longer negotiated (if they ever truly were); rather, they are imposed. If Pharmacy Providers refuse to accept these rates, then their patients will lose valuable care, independent pharmacies will be forced out of business, and the PBMs will effectively shut all other competition out of the marketplace.
- COA reiterates its recommendation that CMS implement guardrails that would ensure PBMs do not assess new administrative fees, such as the “Bonus Fee” in the ESI Program, to offset losses associated with changes to pharmacy DIR Fee reporting.
- COA again urges CMS to investigate how Plan Sponsors and their PBMs set reimbursement rates for specialty medications and the resulting impact on negotiated prices and the requirements under 42 U.S.C. § 1395w-104(b). The ESI Program demonstrates the urgency of this request. PBMs are essentially threatening to make Part D participation entirely non-viable for Pharmacy Providers by offering reimbursement below drug acquisition cost. Urgent action is needed to require PBMs to offer “reasonable and relevant” reimbursement in accordance with the AWP Law.
Lowest Possible Reimbursement Amount at Point-of-Sale
COA previously expressed its support of the Proposed Rule’s provision to redefine negotiated price as “the lowest possible reimbursement a network pharmacy will receive, in total, for a particular drug, taking into account all pharmacy price concessions.”16 However, we warned this should not be interpreted to allow PBMs to use the
ir market dominance to low-ball reimbursement to a point that Pharmacy Providers are driven out of business. The ESI Program reveals this is precisely the PBMs’ plan.
COA supports the proposed definition of negotiated price to include all pharmacy price concessions that could flow from network Pharmacy Providers to PBMs in addition to dispensing fees, yet ESI has clearly engineered a “Bonus Fee” meant to subsidize a performance program at the expense of Pharmacy Providers, while relieving Plan Sponsors of that expense, without reporting the fees as concessions. In our Comment Letter, we expressed concern that absent other protections for Pharmacy Providers, this provision could result in increased downward pressure on reimbursement to Pharmacy Providers. As it currently stands, the ESI Program reimbursement rates will likely result in payments that are lower than acquisition costs for many Pharmacy Providers. The ESI Program sets reimbursement for 2023 at levels that guarantee every Pharmacy Provider shall receive the lowest possible reimbursement – that is, every Pharmacy Provider will now be treated as though they achieved the lowest possible scores in the current DIR Fee Program. This reimbursement is unsustainable.
While we supported CMS’ lowest possible reimbursement provision insofar as it reduces uncertainty around the final reimbursement amount,17 we expressed our belief that this provision would have unintended consequences that could harm Pharmacy Providers. We warned that, as a result of the Proposed Rule, Plan Sponsors and their vertically integrated PBMs might seek to offset upward premium pressure by using their leverage to drive even lower total reimbursement or exploit loopholes to levy punitive new fees on Pharmacy Providers. This is precisely what ESI has done with its Program.
The reimbursement terms in the ESI Program ensure that many specialty Pharmacy Providers in ESI’s networks will receive reimbursement well below a drug’s acquisition cost.18 This clearly violates the AWP Law, which CMS has a duty to enforce.
Congress enacted the AWP Law as part of the Social Security Act, and through rulemaking, CMS established that Plan Sponsors must contract with any pharmacy that meets the Plan Sponsor’s standard terms and conditions for network participation.19 The law also requires that Plan Sponsors offer a standard contract with “reasonable and relevant” terms and conditions of participation, where any willing pharmacy may access the standard contract and participate as a network pharmacy.20 Additionally, CMS has noted that “[i]t is within [CMS’s] authority and appropriate for CMS to provide additional clarification of these regulatory requirements when necessary to help ensure they are being effectuated in accordance with the statutory requirement.”21 It is therefore well within CMS’s authority to ensure that reimbursement rates are “reasonable and relevant” for Pharmacy Providers. CMS must use this authority to ensure equity and fairness in Medicare Part D, because as the ESI Program clearly demonstrates, there is no negotiation between PBMs and Pharmacy Providers. As we expressed in our Comment Letter, and as the ESI Program makes abundantly clear, ESI’s message to Pharmacy Providers is accept our terms and conditions as presented, or you cannot participate in our network.
As we emphasized in our Comment Letter, up-front point-of-sale (“POS”) reimbursement must be “reasonable and relevant” and not structured in a way that fails to compensate Pharmacy Providers for acquisition costs, particularly for expensive specialty drugs. The ESI Program is a direct challenge to the “reasonable and relevant” reimbursement requirement, providing reimbursement that is neither reasonable nor relevant, effectively daring CMS to respond.
As we further explained in our Comment Letter, CMS has issued specific guidance that unreasonably low reimbursement rates for specialty drugs may not be used to circumvent convenient access standards.22 We encouraged the agency to adopt reforms to protect Pharmacy Providers. Now that CMS can see first-hand the brazen disregard ESI has shown for these standards, we emphatically reiterate our call to action. CMS should aggressively enforce this provision and require PBMs to offer “reasonable and relevant” reimbursement, and where PBMs continue to boldly violate the AWP Law as ESI does with the ESI Program, CMS should issue warning letters and otherwise regulate as appropriate, pursuant to its authority under Medicare Part D.
Finally, in our Comment Letter, we advised that the current lack of specificity within the Proposed Rule leaves open the possibility that, while Plan Sponsors would be required to report the lowest possible reimbursement amount at the POS, nothing in the Proposed Rule requires PBMs to provide Pharmacy Providers with that reported reimbursement amount. This creates a loophole for Plan Sponsors and their PBMs to pay Pharmacy Providers even lower amounts and higher amounts to their affiliated pharmacies. The ESI Program confirms this fear, as it gives ESI sole discretion to assess “Bonus Fees” only from
Pharmacy Providers of its own choosing, to measure Pharmacy Providers’ performance in its sole discretion, again without any transparency, and to provide “Performance Awards” to Pharmacy Providers in its sole discretion. This disturbing lack of transparency is shocking and ripe for abuse, as it allows ESI to simply take money from independent Pharmacy Providers and give that money to its corporate affiliated pharmacies. The contractual language in the ESI Program clearly permits ESI to award any amount to any Pharmacy Provider at its own discretion.
- CMS must ensure that overall reimbursement to Pharmacy Providers is “reasonable and relevant.” CMS can accomplish this goal by addressing network adequacy, increasing the use of guardrails on Part D Plan flexibility for narrower networks, and closing additional loopholes that Plan Sponsors and their PBMs use to extract price concessions from Pharmacy Providers.
- CMS should issue a Guidance or Advisory Notice informing ESI (and other PBMs following the ESI lead in cutting reimbursement rates) that the rates offered in ESI’s Program violate the “reasonable and relevant” standard and requiring ESI to offer rates that account for specific metrics, including (without limitation) acquisition cost, cost to dispense, and some reasonable margin.
- COA underscores again (as we did in our Comment Letter) that although we support CMS’s adoption of a lowest possible reimbursement approach to make it clear to Pharmacy Providers what the reimbursement will be at the POS – and, very importantly, lower patients’ OOP costs at the POS – this cannot provide a way for PBMs to low-ball reimbursement, as CMS has clearly done with ESI.
Clarification of Pharmacy Administrative Service Fees and Price Concessions
In our Comment Letter, COA opposed language that would include administrative service fees as price concessions and recommended that service fees only be accounted for as administrative costs that are factored into the Part D bid. The ESI Program has clearly shown why COA’s concerns were well- founded. We recommended a specific and limited definition of administrative service fees that would prevent this type of abuse. The ESI Program attempts to subsidize a performance network by shifting the cost of the program away from Plan Sponsors and onto Pharmacy Providers. This is precisely the kind of increas
e in fees COA warned CMS that PBMs would institute. Treating administrative fees as an administrative cost that is accounted for in the Part D bidding process, as COA previously recommended, could mitigate the risks associated with this proposal.
Once again, we want to reiterate that this new “Bonus Fee” is a way to keep the “Bonus Pool” within the Cigna corporate structure, which owns ESI and its Accredo specialty and mail order pharmacies. ESI, at its sole discretion, determines what pharmacies receive “Performance Awards” from the “Bonus Pool.” There is no oversight, transparency, or accountability.
As the ESI Program now substantiates, as COA related in its Comment Letter, CMS’ proposed definition of administrative service fees is too broad. We warned that if PBMs can contrive administrative fees as network fees, PBMs could make pharmacy network access contingent on payment of administrative fees operating under the guise of network fees. Thus, ESI invented the “Bonus Fee,” a fee Pharmacy Providers must pay to participate in the network, precisely as COA predicted. Although ESI will likely argue that the
$0.75 per claim “Bonus Fee” is de minimus for specialty Pharmacy Providers dispensing higher-cost specialty drugs, the fee will certainly harm independent retail providers dispensing low-cost generic drugs.
Moreover, we predict that this contrived “Bonus Fee” is only the opening salvo in what PBMs will use to replace DIR Fee revenue.
As COA warned in our Comment Letter, taken to the extreme, these PBM tactics are extortionary and extremely harmful to Pharmacy Providers. An analysis conducted by the National Community Pharmacists Association found that PBMs have already increased DIR Fees by 1,600% between 2015-2020.23 Given PBMs’ ingenuity, there is little reason to doubt they will find a way in the future to increase what is now a
$0.75 per claim “Bonus Fee,” perhaps by making the fee a percentage of claims rather than a flat fee. Combined with the power to assess such fees arbitrarily and disburse them without transparency among Pharmacy Providers at their sole discretion, PBMs could very plausibly use these “Bonus Fees” to siphon funds from independent Pharmacy Providers to their corporate affiliated pharmacies.
Furthermore, the proposed definition of price concession includes “all forms of discounts, direct or indirect subsidies, or rebates that serve to reduce the costs incurred under Part D plans by Part D sponsors.”24 We warned that the lack of specificity in this definition could create a situation where PBMs seek new fees outside of the definition to offset the loss of DIR Fees associated with the Proposed Rule, and that a clearer, more specific definition that explicitly includes “quality” program fees is necessary. Although we dispute that the “Bonus Fee” falls outside this definition – and therefore should be included in the negotiated price for these drugs – ESI clearly believes these are not price concessions and does not plan to report them as such. A more specific definition is therefore needed, although we believe that CMS must take immediate action to inform ESI that these are, in fact, “price concessions.”
The “Bonus Fees” are price concessions because they are “direct or indirect subsidies… that serve to reduce the costs incurred under Part D plans by Part D sponsors.”25 The cost of implementing and funding a quality performance program is one that should fall on Part D Plans and their Plan Sponsors; however, in this instance, ESI has shifted the cost from the Part D Plans onto Pharmacy Providers. Indeed, specialty and other Pharmacy Providers with no volume of claims in the specific “quality metrics” ESI uses in the ESI Program are programmatically excluded from receiving any amount of their “Bonus Fees” back as a “Performance Award.” Therefore, the “Bonus Fees” for such Pharmacy Providers directly serve to reduce the costs of the ESI Program to ESI because ESI is using those mandatory fees to pay for the ESI Program, with no possibility that such Pharmacy Providers will receive those fees back. Accordingly, those fees must at least be reported as part of the negotiated price of every Part D drug so that beneficiaries are guaranteed to receive the lowest possible price that any Part D Plan has paid for the drug. Although the “Bonus Fee” is problematic for other reasons, as discussed below, it is by definition a subsidy that reduces plan costs and should therefore be included in the negotiated price.
COA again implores CMS to further clarify the definition of price concessions due to the financial strain it places on Pharmacy Providers, as demonstrated by the ESI Program’s lower reimbursement rates. If ESI is permitted to assess fees on Pharmacy Providers there is no end to the potential use of fees, as with the growth in DIR Fees over the past decade that culminated in the need for the Proposed Rule. As these “Bonus Fees” evolve without regulation, Pharmacy Providers will likely be subject to additional extreme financial risk, especially those Pharmacy Providers providing specialty drugs to Medicare beneficiaries.
- COA emphasizes its recommendation that CMS amend the definition of “price concessions” to treat all pharmacy administrative service fees as administrative costs that are accounted for in the Part D bid.
- A clearer, more specific definition of “price concession” is needed to explicitly include fees like ESI’s “Bonus Fees” as part of the negotiated price of drugs. CMS should now be aware that PBMs will look for any way to recoup lost revenue from current DIR Fees by creating new contrived fees like these “Bonus Fees.” ESI’s “Bonus Fee” is functionally no different than any quality or performance program and must be treated the same.
Clarification on Any Willing Provider Law
COA again asks CMS to strengthen its interpretation and enforcement of the AWP Law, as the ESI Program demonstrates how PBMs will continue to limit beneficiary access to medications, especially drugs used to treat cancer and other serious diseases.
CMS has stated in Section 50.8.1 of Chapter 5 of the Medicare Prescription Drug Benefit Manual that Plan Sponsors must allow any pharmacy to participate in their plan networks so long as the pharmacy is willing to accept the Plan Sponsor’s standard contracting terms and conditions, which must be “reasonable and relevant.”26 The ESI Program, including the inability of Pharmacy Providers to negotiate terms and conditions, low-ball reimbursement, and quality performance that effectively bars the participation of specialty drug Pharmacy Providers (while requiring them to subsidize it), is foundationally built on terms and conditions that are both not “reasonable and relevant.”
In our Comment Letter, we discussed how terms and conditions like narrow networks and low-ball reimbursement run counter to President Biden’s goal of ensuring competition in the prescription drug market discussed in the Executive Order Promoting Competition in the American Economy.27 By introducing this new ESI Program that is not “reasonable and relevant,” ESI will continue to drive business to its Accredo specialty and mail order pharmacies as Pharmacy Providers that can no longer afford to participate in ESI’s Program continue to drop out, or worse yet, go out of business. This effectively creates a market of vertical monopolies, to the detriment of Pharmacy Providers and their patients.
COA has consistently warned that the consolidation among insurers and PBMs
provides unprecedented market clout allowing Plan Sponsors and their PBMs to create abusive and harmful terms and conditions with impunity in the prescription drug market. The ESI Program will further drive retail pharmacies out of business, creating even more pharmacy “deserts” than currently exist, especially in rural areas. And while ESI may argue its own pharmacies operate under the same terms and conditions, this is simply unknown when ESI has full discretion in implementing its ESI Program with absolutely no oversight, transparency, or accountability.
CMS needs to understand that if (and a big “if”) there are any losses incurred by ESI’s Accredo specialty and mail order pharmacies as a result of the ESI Program, they will be subsidized by profits realized by ESI or Cigna, the parent company of ESI. Because Part D operates on a capitation model, Cigna’s bid to CMS needs only be profitable to Cigna on a per-patient basis. Accredo (owned by ESI, which is owned by Cigna) need not realize any profits on dispensing as long as ESI and/or Cigna realize profits. In fact, in one way, the more money Accredo loses, the more profits that ESI realizes, and these profits can eventually flow back to maintain Accredo’s specialty and mail order pharmacies. Disturbing as this relationship is to the pharmacy market, ESI and other PBMs will likely hide behind the Part D “non-interference clause” to maintain this status quo, and essentially ignore the AWP Law, daring CMS to act.
CMS has clear authority to act regarding the AWP Law. The “non-interference clause” does not prohibit CMS from setting rules around how DIR Fees can be assessed or calculated. As CMS itself has stated, “since the statute requires [CMS] to regulate many aspects of how drug costs are made available and displayed to beneficiaries and treated in Part D bidding and payment processes, it is clear that [CMS has] an important role to play in establishing rules for consistent treatment of drug costs in the program.”28 Most notably and importantly, CMS has expressly noted that “[i]t is within [CMS’s] authority and appropriate for CMS to provide additional clarification of these regulatory requirements when necessary to help ensure they are being effectuated in accordance with the statutory requirement.”29 In line with the statutory mandate that CMS ensure Plan Sponsors offer a standard contract with “reasonable and relevant” terms and conditions of participation whereby any willing pharmacy may participate,30 CMS is more than authorized to take these additional and necessary steps to address the ESI Program, which highlights the vulnerabilities in the Proposed Rule.
- COA underscores its recommendation that CMS solicit input from Pharmacy Providers and implement guardrails that would tailor terms and conditions to specific pharmacy types in order to ensure that pharmacy networks are not further restricted through PBM exploitation of the interpretation of the AWP Law and that terms and conditions are enforced in a manner that is “reasonable and relevant” to all Pharmacy CMS has the authority to address the negative ramifications of AWP Law by providing additional oversight of network terms and conditions during bid reviews to prevent overreach and to ensure AWP Law laws are being interpreted as intended. CMS must exercise this authority against ESI as it seeks to implement the ESI Program, which is neither “reasonable nor relevant.”
- COA recommends that CMS investigate the actuarial methodology that PBMs in the Part D program use to set reimbursement rates for specialty drugs.
- COA also underscores its recommendation that CMS issue warning letters, levy fines, and seek injunctive relief against Plan Sponsors and their PBMs for offering unreasonably low reimbursement that violates the AWP Law. Moreover, COA recommends that CMS specifically issue a warning letter to ESI in particular and, if necessary, seek to enjoin ESI from implementing the ESI Program.
Proposed Enhancements to the CMS Dispute Resolution Process
The ESI Program reaffirms COA’s belief that CMS has a duty to ensure Plan Sponsors and their PBMs are acting within the scope of Medicare regulations. Enhancing the CMS Dispute Resolution Process, as COA recommended in its Comment Letter, will allow Pharmacy Providers to obtain redress when PBMs like ESI seek to impose terms and conditions upon them, like those in the ESI Program, which are not “reasonable and relevant.”
We previously observed that Plan Sponsors and their PBMs wield a disproportionate amount of market power, giving them leverage to do whatever they want with Pharmacy Providers. We reiterate again that there are no “negotiations” between PBMs and Pharmacy Providers, and the ESI Program precisely exemplifies the lack of any negotiation that we called to CMS’ attention in our Comment Letter. As the ESI Program makes clear, ESI expects Pharmacy Providers to either accept any program as-is or not participate at all. Unfortunately, because ESI’s contract requires any litigation to commence in either state or federal court in St. Louis, Missouri, ESI has taken advantage of precedents in that district to immediately shut down any disputes under the AWP Law for lack of a private right of action. Additionally, those courts refuse to recognize the disparity in bargaining power between PBMs and Pharmacy Providers to essentially close the door on all Pharmacy Provider disputes over contract terms.
Consistent with CMS’ guidance, which states, “Part D sponsors must offer reasonable and relevant reimbursement for all Part D drugs” as required under the AWP Law, CMS can and should intervene to promote competition among Pharmacy Providers and protect patients’ rights to use a pharmacy of their choice. CMS’s actions to ensure Part D Plan Sponsors’ terms are “reasonable and relevant” would therefore not violate the non-interference clause.
- COA again recommends that CMS implement policies that strengthen process requirements for dispute resolution between Plan Sponsors and their PBMs and Pharmacy Providers. CMS should implement an administrative appeals process that permits Providers to advance Part D contract disputes to CMS, with the opportunity for judicial review in any court of competent jurisdiction, notwithstanding any contractual term to the contrary.
Updated Pharmacy Quality Measures
Pharmacy Providers should be assessed using metrics relevant to the work of the pharmacy type and to actions that Pharmacy Providers can truly be held accountable for influencing patient behavior, such as drug adherence. The “quality metrics” included in the ESI Program do not apply to certain specialty Pharmacy Providers, such as oncology and urology practices treating cancer patients, because they apply to diabetes and cardiovascular drug adherence. CMS must stop Plan Sponsors and their PBMs from assessing specialty Pharmacy Providers with performance measures focused on primary care – having nothing at all do to cancer – to justify extracting additional administrative fees from specialty Pharmacy Providers. ESI has created a program whereby specialty Pharmacy Providers are simply being taxed to fund the ESI “Bonus Pool.” The ESI “quality metrics” are neither “reasonable nor relevant” for specialty Pharmacy Providers and unlawfully discriminate against Pharmacy Providers that dispense cancer drugs – a protected class of drugs under Medicare.
As we made very clear in our Comment Letter, the top PBMs use “quality performance” as a front to extort DIR Fees from Pharmacy Providers. This is a rigged game just like “Three-Card
Monte” where Pharmacy Providers, especially those dispensing specialty drugs, cannot win. As we previously advised, PBMs overwhelmingly penalize Pharmacy Providers for poor performance versus those few that are rewarded for superior performance. ESI’s Program escalates this abusive behavior, making clear that (1) specialty Pharmacy Providers must pay into, but may not benefit from the quality performance portion of the ESI Program; (2) ESI reserves the right to charge or not charge “Bonus Fees” to Pharmacy Providers at its discretion, meaning it may exempt any Pharmacy Provider it chooses from such fees; and (3) ESI may issue “Performance Awards” to any Pharmacy Providers it chooses, including those pharmacies that are corporate-affiliates of ESI and may not even be paying into the Program. CMS must understand the rigged nature of this “quality performance” sham by ESI, through which ESI gives itself the right to discriminate against specialty Pharmacy Providers it does not like, while rewarding affiliated Pharmacy Providers, without having to produce a shred of evidence that the Program is being applied equally and fairly.
CMS must recognize the history of profit-seeking strategies and tactics pursued by the top PBMs and view the ESI Program in that wider context. As manufacturer drug rebates came under greater scrutiny, PBMs turned to Pharmacy Providers to make up for, and even increase, lost revenue from rebates. They first did this by assessing all types of network access and administrative fees on Pharmacy Providers and, after these subsequently came under scrutiny, the top PBMs started implementing “quality performance programs” to justify extracting DIR Fees from Pharmacy Providers. Now that CMS has noted in the Proposed Rule that “sponsors and PBMs have been recouping increasing sums from network pharmacies” through DIR Fees and has sought to end profiteering from that revenue stream, ESI is now ratcheting down reimbursement and assessing “Bonus Fees” on Pharmacy Providers, which are likely to become the successor to DIR Fees. Moreover, because the implementation of these “Bonus Fees” discriminates against specialty Pharmacy Providers, they have become a means to exclude such Pharmacy Providers (and consequently, their patients) from participation in Part D.
As we discussed in our Comment Letter, with respect to cancer treatment, the quality measures tied to adherence with oral cancer drugs are unsuitable for cancer patients, as their drugs are often changed to align with their dosage or therapy. Instead of even engaging in an attempt to fairly assess oncology Pharmacy Providers’ performance, ESI has dropped the pretense of quality measurement, instead merely levying what amount to fines against oncology Pharmacy Providers for dispensing these life-saving drugs. Not only does this confirm the cynical view COA expressed about these fees as a rigged game, but it is also discriminatory and potentially violative of the Rehabilitation Act.31
As CMS is aware, Medicare Part D Plans are required to provide coverage for all or substantially all drugs within the antineoplastic class because it is a protected class. Moreover, most cancer patients likely qualify as an individual with a disability under the Rehabilitation Act. To the extent the ESI Program raises prices for these patients, it discriminates against them in violation of the statute. The ESI Program does raise prices for cancer patients because we will bet that “Bonus Fees” will not be reported by Part D Plans as part of the negotiated price, even though no specialty Pharmacy Provider will have the opportunity to receive any portion of that fee back: thus, cancer patients will not receive the lowest possible price for those claims. Critically, since oncology providers are also aggrieved by ESI’s unlawful discrimination against cancer patients, the providers are entitled to bring a claim against ESI pursuant to the Rehabilitation Act.32
CMS needs to understand that ESI will make its money either by lowering reimbursement and taxing Pharmacy Providers or by shipping drugs to patients from one of its Accredo specialty and mail order pharmacies. And the latter has resulted in patients facing denials, delays, and incorrect drugs and/or dosages. In fact, since the Federal Trade Commission (“FTC”) recently opened a docket for public comments on PBMs, commenters have expressed the profound ineptitude and apathetic care they have received at the hands of PBM-owned specialty pharmacies, including ESI. For example, one commenter wrote:
“My insurance company uses Express Scripts. As a cancer patient my meds never arrived on time, overheated from improper packing which caused them to be not viable. Also, I would get the runaround multiple times for trying to get the medications. This was a life-saving drug and I’ve never had anything but problems. Because of a lot of Express Scripts incompetency, my medication failed to work, and my disease mutated which resulted in me having to take a different course of action in order to save my life. I think you need to look into the corporate greed of this company and all that they do in regard to providing people with life-saving medications.” 33
Indeed, COA has thoroughly documented the troubling, abusive, and dangerous practices of PBMs when they force cancer patients away from the patients’ Pharmacy Provider of choice.34
CMS noted that under the Contract Year 2022 Medicare Advantage and Part D Final Rule, plans are required to disclose pharmacy performance measures to CMS.35 In our Comment Letter, we noted this as a positive first step in making measures more transparent: however, the AWP Law explicitly calls for “reasonable and relevant” terms and conditions of participation in a standard network contract.36 We underscore that current pharmacy performance quality measures utilized by plans and PBMs, including ESI in the ESI Program, are not “reasonable and relevant” for different pharmacy types.
Given that CMS has stated the non-interference clause does not prohibit CMS from establishing requirements necessary for implementing the AWP Law, the agency has a duty to ensure that Pharmacy Providers are subject to “reasonable and relevant” quality measures.37 The ESI Program confirms that CMS must intervene and ensure Plans Sponsors and PBMs are implementing the AWP Law as it was intended. CMS must ensure that terms and conditions are “reasonable and relevant” such that all Pharmacy Providers may participate meaningfully in Part D.
- COA urges CMS to adopt requirements for pharmacy performance measures that plans may use and ensure that performance is measured against similarly situated providers and is relevant to the type of care provided.
- COA urges CMS to disallow “Bonus Fees” or other similar administrative fees assessed on Pharmacy Providers that they have no opportunity to recoup, especially in the case of oncology and
- In the event ESI or some other PBM seeks to implement quality measures that actually measure specialty performance, COA requests that CMS evaluate how Plan Sponsors and their PBMs calculate adherence scores on specialty drugs, such as oncology drugs, to ensure compliance with the requirements for “reasonable and relevant” terms and conditions, as well as ensuring that quality measures are aligned with patients’ safety and efficacy of treatment.
The ESI Program represents a new evolutionary step in the abusive history of PBM contracting with Pharmacy Providers, and COA remains very concerned that the Proposed Rule does not provide enough protection against loopholes PBMs use to extract unfair and unsustainable price concessio
ns from Pharmacy Providers, as demonstrated by the ESI Program. Due to substantial consolidation among PBMs, and PBM/insurer consolidation, the PBM/insurer “complex” has near monopolistic control of the prescription drug market in this country. There is simply no negotiation, especially with Pharmacy Providers. As evidenced by the ESI Program, you take what they give you, or you lose patients covered by their plans. It’s either a slow bleed, or you shut the pharmacy doors. And everything the PBMs do are cloaked in transparency, hidden behind legal walls, and at their sole discretion. In effect, they are police, jury, judge, and executioner. If this seems extreme, talk to any independent Pharmacy Provider or medical practitioner. And who suffers most? Patients.
As stated in our Comment Letter and reiterated in this letter, CMS clearly has the authority to take the steps we have recommended in finalizing the Proposed Rule. While CMS has historically eschewed directly “interfering” in sponsor-pharmacy “negotiations,” CMS maintains a longstanding ability to set appropriate guardrails and rules around the nature of the relationship between Part D Plans and Pharmacy Providers. Unfortunately, PBMs have used the “non-interference clause” as a shield to stop any and all oversight of their programs, reimbursement, and procedures. However, CMS has highlighted numerous statutory provisions that require the agency to directly intervene in the contractual relationship between Part D Plans and Pharmacy Providers including, relative to drug-cost-related issues, “Interpretation of what ‘access to negotiated prices’ means, any-willing-pharmacy standard terms and conditions, prohibition on any requirement to accept insurance risk, prompt payment, and payment standard update requirements.”38 The actions we recommend in our Comment Letter and this letter are actions that CMS must take to protect Pharmacy Providers and the patients they serve. CMS certainly has the regulatory and statutory authority to take immediate action.
We, the COA Board, and the entire COA team are available to answer any questions and discuss points raised in this letter in greater detail. However, this ESI Program needs to be addressed immediately.
Thank you. Sincerely,
Kashyap Patel, MD
CC: President Joe Biden Federal Trade Commission
Hon. Ron Wyden, Chair, Senate Committee on Finance
Hon. Michael Crapo, Ranking Member, Senate Committee on Finance Hon. Richard Neal, Chair, House Committee on Ways and Means
Hon. Kevin Brady, Ranking Member, House Committee on Ways and Means Hon. Frank Pallone, Chair, House Committee on Energy and Commerce
Hon. Cathy McMorris Rodgers, Ranking Member, House Committee on Energy and Commerce Hon. Carolyn B. Maloney, Chair, House Committee on Oversight and Reform
Hon. James Comer, Ranking Member, House Committee on Oversight and Reform
1 While it is not known which Plan Sponsors will participate in the ESI Program, ESI provides PBM services to many Part D Plans, including Cigna, HealthSpring and Clear Spring Health.
2 See Matt Stoller. “The Red Wedding for Rural Pharmacies.” March 2022. Available Here.
3 Adam Fein, Ph.D. “The Top Pharmacy Benefit Managers of 2021: The Big Get Even Bigger.” Drug Channels. April 5, 2022. Available Here.
4 For a full discussion on the negative impact of “low-ball” reimbursement on patients, Pharmacy Providers, and Plan Sponsors, see Frier Levitt, Pharmacy Benefit Manager Exposé: How PBMs Adversely Impact Cancer Care while profiting at the expense of patients, providers, employers, and taxpayers, February 2022 at 47-52. Available Here.
5 See Matt Stoller. “The Red Wedding for Rural Pharmacies.” March 2022. Available Here.
7 See Matt Stoller. “The Red Wedding for Rural Pharmacies.” March 2022. Available Here.
8 Adam Fein, Ph.D. “The Top Pharmacy Benefit Managers of 2021: The Big Get Even Bigger.” Drug Channels. April 5, 2022. Available Here.
9 The White House. “Executive Order on Promoting Competition in the American Economy.” July 2021. Available Here.
10 42 U.S.C. § 1395w-104(b), et seq.; 42 C.F.R. § 423.505(b)(18); Medicare Prescription Drug Benefit Manual § 50.3.
12 See Frier Levitt, supra, n.2.
13 42 U.S.C. § 1395w-104(b), et seq.
14 Adam Fein, Ph.D. “The Top Pharmacy Benefit Managers of 2021: The Big Get Even Bigger.” Drug Channels. April 5, 2022. Available Here.
15 See, e.g., 79 FR 1918 at 1971; 83 FR at 16590; 82 FR 56336 and 83 FR 62152.
16 87 FR 1842
17 “Reforming Pharmacy Direct And Indirect Remuneration In The Medicare Part D Program.” Health Affairs Blog. July 19, 2021. Available Here.
18 See Frier Levitt, supra, n.2 at 48 (demonstrating the rising percentage of claims being reimbursed below the cost of acquisition in Illinois Medicaid Managed Care); see also Kearney. “Squeezing the middle: how healthcare trends are shaking up pharmaceutical profit pools.” Available Here (showing decline in pharmacy net profit margin for pharmacies of 2% from 2016-2020, while noting payors/PBMs drew all gains in US prescription drug supply chain in that time).
19 42 CFR § 423.120(a)(8)(i)
20 42 § 423.505(b)(18) and 83 FR at 16590
21 83 FR at 16590
22 Medicare Prescription Drug Benefit Manual, Chapter 5, Section 50.5.3
23 NCPA. “Payers and PBMs Profit From Obscure Pharmacy Fees, While Seniors See No Relief in Prescription Costs.” February 2020. Available Here.
24 Medicare Program; Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs. CMS. Available Here.
26 CMS. “Medicare Prescription Drug Benefit Manual – Chapter 5.” September 2011. Available Here.
27 The White House. “Executive Order on Promoting Competition in the American Economy.” July 2021. Available Here.
28 79 FR 1918 at 1972
29 83 FR at 16590
30 42 C.F.R. § 423.505(b)(18)
31 29 U.S.C. § 794.
32 29 U.S.C. § 794a(a)(2).
33 See Matt Stoller. “The Red Wedding for Rural Pharmacies.” March 2022. Available Here. Quote cleaned for grammar.
34 COA. “Pharmacy Benefit Manager Horror Stories Parts I-V.” Available Here.
35 CMS. “Medicare and Medicaid Programs; Contract Year 2022 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicaid Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly.” January 2021. Available Here.
36 83 FR at 16590
37 83 FR at 16592
38 79 FR 1918 at 1971.