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May 28 2018

Eliminating DIR Fees Remains Front Burner Issue for Pharmacists

When hundreds of community pharmacists converged on Capitol Hill in April 2018, the group had a clear message for lawmakers:  The time has come to end retroactive pharmacy DIR fees, both as a way to lower costs for patients, and to stop the unfair loss of revenue to pharmacies. Specifically, pharmacists were seeking support for “The Improving Transparency and Accuracy in Medicare Part D Spending Act,” (S.413/H.R. 1038), legislation that would put an end to the controversial DIR fees once and for all.

What are DIR fees and why are they so controversial?  According to the Centers for Medicare and Medicaid Services (CMS), direct and indirect remuneration (DIR) fees are intended to reflect the true cost of a Medicare Part D medication, after drug manufacturer rebates and other price adjustments are taken into account.  “Often, the Part D sponsor or its pharmacy benefits manager (PBM) receives additional compensation after the point-of-sale that serves to change the final cost of the drug for the payer, or the process paid to the pharmacy for the drug,” CMS explained in a press statement. “Under Medicare Part D, this post point-of-sale compensation is called direct and indirect remuneration (DIR) and is factored into CMS’s calculation of final Medicare payments to Part D plans.

While this may seem logical, the ensuing controversy stems from CMS’s practice of retroactively charging health plans and PBMs to reconcile the cost paid for a prescription with funds later received via manufacturer rebates and price adjustments. Health plans and PBMs then pass the retroactive charges on to pharmacies, a process known as a “clawback,” often long after the transaction has occurred.

DIR fees have become such a flashpoint, that a 2018 survey by the National Community Pharmacists Association (NCPA) found “an overwhelming majority of independent community pharmacy owners say retroactive pharmacy direct and indirect remuneration fees undermine patient access to prescription drugs and hinder owners’ ability to manage their businesses.” Among the survey’s findings: the point-of-sale that serves to change the final cost of the drug for the payer, or the process paid to the pharmacy for the drug,” CMS explained in a press statement.  “Under Medicare Part D, this post point-of-sale compensation is called direct and indirect remuneration (DIR) and is factored into CMS’s calculation of final Medicare payments to Part D plans.

While this may seem logical, the ensuing controversy stems from CMS’s practice of retroactively charging health plans and PBMs to reconcile the cost paid for a prescription with funds later received via manufacturer rebates and price adjustments.  Health plans and PBMs then pass the retroactive charges on to pharmacies, a process known as a “clawback,” often long after the transaction has occurred.

DIR fees have become such a flashpoint, that a 2018 survey by the National Community Pharmacists Association (NCPA) found “an overwhelming majority of independent community pharmacy owners say retroactive pharmacy direct and indirect remuneration fees undermine patient access to prescription drugs and hinder owners’ ability to manage their businesses.”

Among the survey’s findings:

  • 84 percent said DIR fees hinder their ability to plan for the future of their business
  • 78 percent said DIR fees make cash flow unpredictable
  • 75 percent said DIR fees make it hard to predict operating revenue
  • 87 percent said DIR fees push patients into the Part D coverage gap (“Donut hole”) more quickly, where patients have much higher out-of-pocket costs
  • 69 percent said DIR fees inflate patient cost-sharing levels, which increases patients’ true out-of-pocket costs.
  • 82 percent said that, while pharmacy benefit managers claim DIR fees are linked to patient health outcomes, they never receive any information about how the fees are linked to quality measures.

While the fate of H.R. 1038 and its companion Senate bill, S. 413 seems uncertain – each bill is currently stalled in the committee process – resourceful pharmacies are looking for opportunities to better manage DIR fees, and thereby mitigate their impact.  These efforts include:  Using previous fee levels to anticipate future fees, working with PBMs/health plans to establish timelines and develop metrics regarding fee assessment, and proactively communicating with consumers so they understand why co-pays may be increased for certain drugs.

Pharmacies did get a small dose of good news though when CMS issued a final 2019 Medicare Part D rule to require a portion of rebates and DIR fees be assessed at the point of sale.  The rule doesn’t actually make the change, instead stating that any new requirements would be proposed through future rule-making.

The CMS action was welcomed by pharmacy industry officials.  “In this rule, CMS hints strongly that it is concerned about retroactive pharmacy DIR, that it has the statutory authority to address the issue, and that there may be further rule-making to deal with it in the months again, said National Community Pharmacists Association CEO B. Douglas Hoey in a press release.  “That’s very promising.”