If you are a provider in a value-based care (“VBC”) contract, that puts you “at risk” for the drug costs of your attributed patients – or even if you are in an upside-only shared savings agreement where pharmacy costs count against your overall savings by the carrier – you need to investigate whether you are being properly credited for the value of drug manufacturer rebates received by the payor on the other end of the agreement. Drug rebates can reduce the “actual” cost of drugs for the payor, and – if you are unaware of them, your practice could be leaving substantial amounts of money on the table – either by paying more than is necessary in an at-risk contract, or by being subjected to a reduced payout under a shared savings arrangement.
What Are Drug Rebates?
Drug manufacturer rebates – sometimes referred to as pharmacy or Rx rebates (or, if relating to drugs dispensed by a clinician, as “medical rebates”) – are payments made by drug manufacturers to pharmacies, Pharmacy Benefit Managers (“PBMs”) or to specialized PBM Group Purchasing Organizations (“GPOs”) known as rebate aggregators, in exchange for purchasing specific volumes of drugs (“Drug Rebates”). These Drug Rebates, or more often a percentage of them, can make their way back to the health insurance carrier or self-funded plan that is on the other end of your VBC contract.
The Financial Impact of Undisclosed Drug Rebates on Providers in VBC Arrangements.
Providers should investigate whether their payors or “payviders” (depending upon your arrangement, in the case of entities like some IPAs) are receiving Drug Rebates for drugs dispensed to the providers’ patients because the value of the Rebates can quietly – but often very significantly – reduce the “actual” cost of drugs for the practice under the VBC contract. Without determining whether Drug Rebates were received and what their corresponding value is, providers may be unwittingly overpaying for their patients’ care or under-collecting on potential shared savings.
To illustrate, consider this (very) oversimplified example:
1. A medical practice enters into a VBC agreement where the payor pays the practice a capitated Per Member Per Month (“PMPM”) fee for each patient attributed to that practice.
However, the practice must use those funds not only to “pay itself” but also to cover any “actual” costs of the patient for a given time period, including pharmacy costs.
If the practice’s attributed patients have a total pharmacy cost of $100,000 for a given measurement period under the VBC contract, the practice must cover those costs using a portion of the funds it has collected in capitated PMPM payments over that same period.
2. Six months later, the insurance carrier or self-funded plan, through its PBM or affiliated rebate aggregator, receives $30,000 in Drug Rebates corresponding to the drugs dispensed for those same attributed patients during that same period but fails to reveal this to the practice.
3. Depending upon the precise language of the agreement, the “actual” or true pharmacy cost for the attributed patient population for that particular measurement period is $70,000 – and not $100,000.
4. As a result, because the medical practice was unaware of the undisclosed third-party Drug Rebate arrangement with the payor, the payor pockets an additional $30,000 that would otherwise have gone to the practice to use for other purposes.
Depending upon the precise VBC contract language, the payor may have breached the terms of the agreement by failing to disclose and credit rebates to the practice. This, in turn, may lay the groundwork for a lawsuit or give the provider leverage in negotiating with the payor by threatening to file one.
How Frier Levitt Can Help.
Frier Levitt has significant experience in reviewing VBC provider contracts, and in resolving disputes with payors who have effectively pocketed or “skimmed” the value of undisclosed Drug Rebates. Broadly, we have found that many providers are unaware of Drug Rebates or whether their payor receives them in a fashion that could arguably violate their VBC agreements. Such undisclosed Drug Rebates can result in very substantial, but unknown, losses for the practice.
Contact us for a consult to further discuss.
