Direct and Indirect Remuneration (DIR) represents any money that a Medicare Part D plan/ PBM may collect to offset member costs – discounts, rebates, coupons, etc. Initially, this was done via a reconciliation between the claim and the negotiated price, or when a pharmacy would pay the PBM in order to participate in a preferred network – a “pay to play” scenario. However, recently, PBMs have begun expanding DIR fees for commercial plans, too. DIR fees can be assessed in multiple forms, often unknown to the dispensing pharmacy that is forced to pay PBMs any assessed and arbitrary DIR fee.
According to a report in the Journal of the American Medical Association (JAMA), “one in eight pharmacies had closed between 2009 and 2015, which disproportionately affected independent pharmacies and low-income neighborhoods.” The same report noted that improvement strategies should include the consideration of “payment reforms, including increases in pharmacy reimbursement rates for Medicaid and Medicare prescriptions,” which experts agree is a complex process.
Frequently, the DIR fee is assessed on “pharmacy performance,” of which the parameters are unclear, and in many cases, the fee is more than the customer paid for the prescription, creating a scenario in which the pharmacy actually loses money on the transaction. There is currently no legal requirement for PBMs to share their formula for calculating DIR fees.
A report issued by the Government Accounting Office (GAO) reported that in 2016, PBMs negotiated roughly $18 billion in rebates from drug makers for Medicare Part D plans and passed all but $74 million on to the plan sponsors. The GAO reviewed 20 service agreements between Part D sponsors and PBMs and found the primary source of revenue for PBMs was the volume-based fee paid by plan sponsors based on the number of paid claims the PBM processed. The report found that none of the service agreements tied these fees to the price of a drug paid to the pharmacy.
The cost and use of prescription drugs is expected to continue to rise in the coming decades, as the number of older Americans increases and requires more medical treatment and medication. A report by the Senate Homeland Security and Governmental Affairs Committee found that, on average, prices for the 20 brand-name drugs that are prescribed most often for seniors have increased by 12 percent every year for the last five years.
“The unpredictability (of DIR fees) is crushing small, independent pharmacies because they’re losing profits and have no way of accurately planning their finances,” Williams said. “MC-Rx charges mere cents where other PBMs are charging dollars for these fees and includes clear statements as to the amount and nature of those fees in the contract with the pharmacy provider. We believe that an open arrangement in which clients and pharmacy partners have access to full claim level reconciliation of their billing and payments is the best way to proceed for all parties in this delivery chain. This must become a standard practice in the PBM industry to protect and facilitate independent pharmacies.”