After several years of unsuccessful efforts by pharmacy advocates to persuade members of Congress and the executive branch to put an end to inequities in direct and indirect remuneration under Medicare Part D, the National Community Pharmacists Association is taking the fight to court. NCPA last month filed a lawsuit against the Department of Health and Human Services that challenges the validity of DIR fees on the grounds that they lack adequate transparency.
The suit — NCPA v. Azar, in reference to former HHS Secretary Alex Azar — contends that by masking the real price of prescription medications and making it, in the words of NCPA chief executive officer Doug Hoey, “impossible for pharmacies to predict their costs,” DIR fees imposed by pharmacy benefits managers represent an existential threat to independent drug stores and could, especially in rural areas, reduce patient access to essential health care services. Arbitrarily established and inconsistently applied, the fees claw back a portion of payments to pharmacy operators if they are deemed to have fallen short of certain performance metrics. Pharmacies often don’t know how much they will ultimately be paid for a prescription until months after they have filled it.
The toll taken by the current system is high. In addition to creating a level of uncertainty that makes it difficult for pharmacies to develop a rational business plan, rapidly accelerating DIR fees are a significant expense. According to figures cited by NCPA, the fees totaled $4 billion industrywide in 2017 and have risen 1,600% since 2015.
“PBMs force pharmacists to make an impossible choice — pay the concessions or lose your patients,” Hoey says. “Pharmacies have no practical ability to negotiate better terms, because these are take-it-or-leave-it contracts. PBMs have been exploiting the loophole to extract billions from pharmacies without any benefit for patients.”
The situation is not only putting tremendous pressure on independent drug stores; the viability of small chains is also under threat, and DIR fees needlessly complicate operations for pharmacy operators of all sizes.
Lynn Fruth, president of Fruth Pharmacy, which runs some 30 stores in West Virginia, Ohio and Kentucky, is blunt in her assessment of the danger that direct and indirect remuneration represents. “DIR fees are devastating,” she said in a recent interview. “I believe it’s the single biggest issue facing the pharmacy industry today … . If you’re a PBM and a pharmacy then you can make your money over here and not so much over there. But for true pharmacies we have to have a fair reimbursement that covers the cost and allows us to have enough profit to stay in business.
“I fear the day is going to come where people in some areas are going to wake up and say, ‘Hey, where did all the pharmacies go? I’m now living 30 miles from a pharmacy.’ … You think health care is expensive now, try health care without your local pharmacies serving these people and keeping them compliant on their medications.”
The likelihood of a lawsuit to counter DIR fees was foreshadowed in the spring of 2019, when the Trump administration abruptly changed course after having signaled that it would take steps to alleviate the problem. Not long before HHS issued a final rule dashing the pharmacy industry’s hopes, Azar, speaking at an NCPA event, acknowledged the trouble the fees cause for pharmacies and their patients: “We know the burdensome nature of the DIR system can be a real challenge for community pharmacies, while a lot less of a burden for pharmacies owned by the PBM itself. This, by itself, is bad news for patients who want a competitive marketplace and the lowest-cost drugs possible. But we’ve also heard from many of you that the DIR system isn’t being used to improve the quality of services at the pharmacy — it’s just lowering the reimbursement pharmacies get, without the lower effective price being reflected in what patients pay.”
The seeming inevitability of legal action stemming from the controversy over direct and indirect remuneration shouldn’t be allowed to obscure the fact that NCPA has taken a bold — and potentially expensive — step to protect its members and their ability to serve patients. The logic behind the timing of the lawsuit is clear: “Our backs are against the wall,” says Hoey, adding, “We won’t stop fighting until we win.”
NCPA deserves credit for defending retail pharmacy against a practice that the industry, with a handful of exceptions, is unanimous in condemning. Members of the profession should actively support the association’s action, since the outcome of the lawsuit will play a significant part in determining the future shape of the industry.