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The Centers for Medicare & Medicaid Services (CMS) is arguably the most important federal agency affecting the long-term care pharmacy industry. As you know, CMS oversees both Medicare and Medicaid, creating policy for the programs that deliver a vast majority of our industry’s revenue.

The same CMS also creates the rules under which one of our primary customer groups operate: nursing homes.

LTC pharmacy and the LTC industry lobby Congress and CMS independently, and we don’t always focus on the same issues. At times, this results in a win-lose situation where the agency does something we approve of and almost simultaneously delivers bad news to our customers.

Pharmacy Wins in 2023 Medicare Advantage and Part D Rule

Consider this win-lose proposition: CMS recently published the final rule for 2023 Medicare Advantage and Medicare Part D programs. The rule sent shouts of (muted) joy through the pharmacy industry by effectively eliminating retroactive fees on pharmacies by PBMs. Known as direct and indirect remuneration (DIR) fees, these policies allowed health plans to claw back thousands of dollars in payments to pharmacies months after drugs had been dispensed.

Industry praise was muted because CMS delayed implementation of the policy until January 2024, which gives the PBM industry another year to lobby CMS to change its mind.

Bad News for SNFs in CMS Proposed Rule

In early April, CMS published a proposed rule for the SNF prospective payment system update for fiscal year 2023, which begins in October. The proposed rule would reduce payments to SNFs by about $320 million over the course of the year.

This was not unexpected, but it comes at a difficult time for the industry. Revenues haven’t caught up to pre-COVID-19 levels, and employees are leaving in droves. The reduction isn’t meant to be punitive but is instead the result of an earlier miscalculation by CMS.

Back in 2019, when CMS changed the prospective payment system for Medicare Part A from the RUGs classification system to the Patient-Driven Payment Model (PDPM), the intention was to make the change budget-neutral. That is, CMS anticipated that total Part A SNF payments under PDPM would be equivalent to payments that would have been made under the RUGs system. That turned out to be a $1.7 billion miscalculation. CMS is using the 2023 proposed rule to re-adjust the PDPM and recoup the excess payments it has made.

Recall that Medicare Part A doesn’t pay pharmacies directly but pays nursing homes based on the components of the PDPM, of which medications are one. Under this arrangement, pharmacies charge nursing homes for drugs dispensed under the Part A benefit – and the result of the change CMS has proposed will be less available money for SNFs to pay pharmacies for prescription drugs.

Competing Results for Long-Term Care

So, on one hand, CMS has finalized a rule that solves a major problem faced by the pharmacy industry. And on the other, it has created a situation (in the proposed rule) that could result in a reimbursement handicap for pharmacies that serve nursing homes. These situations are not particularly unusual although more troublesome when the same agency regulates two separate parties that work together within a single program, in this case Medicare.

Much rarer are situations where one agency proposes requiring something be done that’s forbidden by another agency. One example is the long history of the Environmental Protection Agency’s attempt to create rules concerning the disposal of hazardous pharmaceutical waste. This involved working closely with the Drug Enforcement Administration (DEA) to ensure that resulting regulation didn’t conflict with the DEA’s authority to manage controlled substance disposal.

Look Both Ways on Regulation

Because today’s healthcare system is more integrated than ever before, different disciplines are required to work more closely together. Consider the major move in public health programs away from fee-for-service toward managed care.

But this has long been the case in long-term care, where several disciplines come together to serve residents of nursing homes. We have learned to attend not only to our own regulatory profile but to keep track of the regulatory environment for nursing homes at both the state and federal level.

Are you diligent in keeping track of the regulations that affect not only your pharmacy but your customers’ operations? You don’t have to do this alone. You can work through your state pharmacy association or state healthcare association representing nursing homes to keep up to date on issues that need your surveillance. Doing this helps you to help customers address their challenges, thereby strengthening your overall business relationship.

The X Factors for Managing CMS Regulations

  • Focus first on understanding and complying with regulations directed at your pharmacy.
  • Reach out to customers or trade/professional associations to understand the regulatory environment of their industries.
  • Remember that what affects customers affects you; think about bigger-picture ways to address mutual pain points.

Do the new rules make you optimistic about DIR fees or concerned about lower facility payments? Join the conversation!

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Written by: Paul Baldwin, Baldwin Health Policy Group
Paul’s pharmaceutical industry experience in public and government affairs led to becoming Executive Director of the Long Term Care Pharmacy Alliance, helping lead the industry through the Medicare Modernization Act and creation of the prescription drug benefit. Paul was VP of Public Affairs for Omnicare before founding Baldwin Health Policy Group.

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