This article will shed some light on the myths associated with the way Star Ratings are measured. The term “Star Ratings” generally refers to the quality measures the Center for Medicare & Medicaid Services (CMS) awards each insurance plan it approves. Usually, these insurance plans have a drug coverage component (Part D). The Part D benefits can be administered by the plan itself, or by a pharmacy benefit manager (PBM). This administrator can also create quality measures for its member pharmacies, which are often referred to as “Pharmacy Star Ratings.”

Myth #1: DIR fees only affect pharmacies

False. DIR fees also affect patients’ out-of-pocket cost

Direct and Indirect Remuneration (DIR) fees are fees that a plan’s benefit manager charges pharmacies based on contractually imposed performance metrics. While this affects pharmacies, DIR fees also affect patients’ out-of-pocket costs. For example, let’s look at a patient taking the Lantus Solostar Pen, a common long-acting insulin:


So, while the pharmacy lost $23.10 in DIR fees, the patient also overpaid by $9.24.

Myth #2: Part D plans get paid more money for higher Star Ratings

False. Unlike Medicare Advantage plans, Part D plans do not receive bonus payments.

This is where we must differentiate between Medicare Advantage (MA) plans and Prescription Drug Plans (PDP).

Among more than 30 quality measures, CMS also measures the following to determine a plan’s overall Star Rating.

  • Accuracy of pricing on
  • Number of patients with medications deemed “high risk.”
  • Medication Adherence for Diabetes Medications.
  • Medication Adherence for Hypertension (RAS Antagonists).
  • Medication Adherence for Cholesterol (Statins).
  • Completion rate of a Comprehensive Medication Review (CMR)

Here is the full 2017 CMS Measure List

MA plans with an overall Star Rating of 4 stars and above receive a 5% bonus payment, and a higher benchmark and rebate, as per the table below (we’ll cover the details of MA revenues in a future post):


Despite the increase in revenue for MA plans, PDP plans do not receive any bonus. In fact, the only benefit for a Part D plan is if the plan has an overall rating of 5 stars, then the plan can accept enrollments all year round, outside of Open Enrollment. That’s it. There is no other benefit. And of the hundreds of Medicare Part D plans, here are the ones with 5 stars:


That’s right, 5 small regional plans. The difficulty of attaining 5 stars coupled with no financial reward (just a year-round open enrollment) has led Part D plans to seek profit elsewhere.

Myth #3: All plans use the same pharmacy performance measurements

False. Measures vary from 1 to 7 measures and fees vary from $9.50/Rx to 11% of MAC

Despite the CMS Star Ratings above, each plan benefit manager can choose their own performance metrics for the pharmacies in their network, with different applicable DIR fees.

For example, one national plan only looks at the Generic Dispensing Rate (GDR), which is not part of the CMS Star Ratings, but is used to determine DIR fees. The GDR is measured for all prescriptions dispensed each quarter. For a GDR of less than 70%, the DIR fee is 3.1%, but for a GDR of over 95%, the DIR fee is 0%. For a drug like Humira the DIR fee can be north of $400 for one prescription.

While some plans only look at GDR, other plans look at multiple measures and assign a different weight to each one:

  1. Adherence to blood pressure medications (25%)
  2. Adherence to statin medications (25%)
  3. Adherence to diabetes medications (25%)
  4. Percentage of diabetics taking statins (10%)
  5. Completion of a Comprehensive Medication Review (CMR) (5%)
  6. Number of patients with medications deemed “high risk” (5%)
  7. Compliance to plan formulary (5%)

The overall score of these measures over a certain period will be used to determine the fee retroactively charged for each prescription during that period. This fee can be a percentage (as in the Humira example) or a flat fee. **The flat DIR fee can range between $0.25 and $9.50 per prescription. **

For many generic drugs, this fee exceeds the cost of the medication. Lisinopril, for example, is a blood pressure medication and one of the Top 3 most prescribed drugs in the United States, and it costs pharmacies $1.10 on average. A $9.50 DIR fee for any Lisinopril prescription will result in a **$8.40 loss for the pharmacy. **There were 104 million Lisinopril prescriptions filled in 2014 so this can result in $873 million in DIR fees for Lisinopril alone.

Myth #4: DIR fees can be measured at the Point-of-Sale

False. DIR fees change the point-of-sale MAC price retroactively.

On April 6, 2015, CMS finalized a rule requiring Medicare plans to disclose Maximum Allowable Cost (MAC) prices to network pharmacies in advance of their use for reimbursement. Link to the CMS call letter

However, CMS does not address Direct and Indirect Remunerations (DIR) in this rule. Furthermore, DIR fees cannot be calculated at point-of-sale. First, there is a measurement period (often a quarter) during which each plan records the prescriptions used for calculating each pharmacy’s performance. Then, these calculations are used to set the DIR fee applicable for each pharmacy. Only once the DIR fee is set can a pharmacy be charged for the prescriptions that were filled several months before. This ensures compliance with the CMS rule while effectively reducing the Maximum Allowable Cost (MAC) for those prescriptions retroactively.

Myth #5: Pharmacy Star Ratings are up to the pharmacies

False. Most pharmacies will not see their fees returned regardless of their star ratings.

Regarding Generic Dispensing Rate, recently, we’ve seen a patient who was taking Omeprazole (generic Prilosec) for his stomach problems. The Omeprazole had stopped working so the doctor prescribed another generic drug, Pantoprazole which his Part D plan would not cover. So the pharmacy tried 3 other generic drugs all which were not covered. Then they tried brand name Nexium which is covered and the computer sent back the message: “DISCUSS GENERIC SAVINGS OPPORTUNITY WITH MEMBER.” How can he discuss generic savings with the member when that same insurance just rejected 4 other generic drugs?

The reality on the ground every day varies greatly from the Star Rating measures. When a doctor gives a patient 2 weeks of Crestor samples, this negatively affects a pharmacy’s adherence Star Rating. Yet the patient remained adherent.

Lastly, some pharmacy Star Ratings are measured based on percentile ranking of the pharmacies in the network. For one popular Part D plan, each pharmacy faces a $5 per prescription DIR fee at the point-of-sale. However, based on its performance measures, the pharmacy can get $5 back plus a $1 bonus. Pharmacies that perform better than 80% of the other pharmacies in the network will receive the $6. However, 50% of all pharmacies will receive $0 back, regardless of their performance. In other words, even if all pharmacies have a perfect Star Rating, half of them would still never see that $5/prescription DIR fee again.