Pharmacies and policy makers are clawing back at DIR fees

DIR fees are now drawing attention outside the pharmacy world

They’re hard to explain. They’re impossible to predict. But ask an independent community pharmacist what keeps them up at night, and chances are direct and indirect remuneration (DIR) fees are at the top of the list. For years, community pharmacies have been screaming into the void about retroactive clawbacks from PBMs working with Medicare Part D plan sponsors. Now, it looks like the ears of the federal government—on the hunt for solutions to high drug prices—are perking up.

“There’s lots of attention to DIR fees in the pharmacy world, but one of the big changes in the last year is the attention to DIR fees outside of the pharmacy world—in the media and legislatively, a lot more people are aware of these things called ‘DIR fees,’ ” said B. Douglas Hoey, RPh, MBA, CEO of the National Community Pharmacists Association (NCPA).

DIR fees refer to price concessions not reflected at the point of sale (POS) for pharmacies participating in Medicare Part D networks. Assessed weeks or months after Part D beneficiaries’ prescriptions are filled, the retroactive fees complicate decisions about staffing and whether to expand or even keep open a business. Pharmacies may not realize until long after a prescription is filled that they didn’t even recoup their costs.

“One way I describe DIR fees to people outside of pharmacy is a broken payment promise. A pharmacy is told it will be paid a certain amount, and then months later the payer says, ‘We’re not actually going to pay you that. We’re actually going to take money away from you,’ ” Hoey said.

Kim Croley, PharmD, CGP, FASCP, FAPhA, clinical pharmacist at Laurel Senior Living Communities in London, KY, has a different analogy. “Let’s say you have a grocery store. When you buy a banana from your grocery wholesaler, it costs a nickel. You know if you sell it for 10 cents, you are going to make five cents profit,” she said. “You can easily figure out how many bananas you have to sell in order to be able to have a staff person to take care of the bananas. That’s how basic business works.”

But in pharmacy, there’s another player—the PBMs that work with Medicare Part D plans. “We have this third-party payer involved in so many transactions, and they get to pull money back out of the blue whenever they want to,” Croley continued. “So, your banana that you thought you could make five cents on, sometimes you end up losing a cent.” The resulting uncertainty is a killer. “I don’t know a person who has a standalone independent pharmacy who ever has any idea of how much money they actually have.”

It’s no good for patients, either. Beneficiary cost-sharing is based on a drug’s price at POS. Say PBMs extract retroactive fees because after rebates and other price concessions are applied, the drug ended up costing less than expected. Did the patient save any money? No—they’ve already paid the higher price at the counter.

That’s where the U.S. Department of Health and Human Services (HHS), CMS in particular, start to take an interest in the issue. With the Trump administration’s release of its Blueprint to Lower Drug Prices and widespread efforts to reduce out-of-pocket costs to patients, there’s unprecedented scrutiny on whether rebates and price concessions are actually saving money for patients.

“There’s also a growing recognition that using rebates for overall drug pricing is not in the best interests of taxpayers. And DIRs kind of get rolled up into the rebate game,” Hoey said.

The Pharmaceutical Care Management Association (PCMA), the professional association representing PBMs, claims that DIR fees save money for patients. “The price concessions that PBMs negotiate with drug manufacturers and drug stores and report to CMS as DIR are generating significant savings for the federal government and are projected to save enrollees in standalone Part D plans $48.7 billion on their premiums over the next 10 years,” PCMA senior director of strategic communications Greg Lopes told Pharmacy Today.

Critics of PBMs downplay the significance of lowered premiums, because if a plan’s formulary doesn’t cover or adequately cover a patient’s preferred medications, they can spend huge sums in out-of-pocket costs—outweighing a savings in premium. The more a Part D beneficiary spends, the faster they are pushed into the donut hole.

In a November 2017 Medicare Part D final rule, CMS issued a “request for information” on a proposal that would require all pharmacy price concessions, including DIR fees, to be reflected in the price at the POS. CMS estimated this proposal could save beneficiaries more than $10 billion on their prescription drugs over 10 years.

Research backs that up. A January 2018 study by the actuarial firm Milliman showed that shifting rebates to POS would reduce beneficiary out-of-pocket costs and could save beneficiaries between $4 billion and $28 billion over 10 years.

In May 2018, HHS Secretary Alex Azar testified before the U.S. Senate Appropriations HHS subcommittee that he’s asked the Office of the Inspector General (OIG) to look into DIR clawbacks, including whether “these DIR fees are essentially taxes imposed differentially and unpredictably on those independent pharmacies in a way that puts them at a competitive disadvantage from the [PBM-owned] ones.”

He cited the OIG investigation again in a June 2018 hearing before the House Committee on Education and the Workforce. “I think it’s important to ensure fair competition and beneficiary access. We want to make sure the pharmacy access is supported for beneficiaries,” Azar said.

“To have the HHS secretary say you’ve got a middleman receiving payments from the manufacturer who’s also receiving payments from the plan sponsor and questioning where their loyalties lie is somewhat unprecedented, so that gives us optimism,” Hoey said.

There’s legislative action, too. Sens. Shelley Moore Capito (R-WV) and Jon Tester (D-MT) introduced the Improving Transparency and Accuracy in Medicare Part D Drug Spending Act (S.B. 413), which would prohibit pharmacy DIR fees from being applied after the POS for prescription drugs dispensed to Medicare beneficiaries. In the House, Reps. Morgan Griffith (R-VA) and Peter Welch (D-VA) introduced a companion bill, H.R. 1038.

In August 2018, 21 U.S. senators and 83 U.S. House representatives signed on to letters urging Azar “to move forward with a proposal that would effectively eliminate retroactive pharmacy DIR fees by requiring that all pharmacy price concessions be accounted for at the pharmacy counter,” according to an NCPA media release.

“We’re hopeful that the legislative support for pharmacy price concessions at point of sale will further encourage CMS to take action,” Hoey said.

For the full article, please visit for the September 2018 issue of Pharmacy Today.