Controversy heats up over pharmacy benefit manager DIR fees

Pharmacy benefits managers (PBMs) are in hot water again if small and specialty pharmacies’ voices can be heard. Besides a litany of complaints from various pharmacy industry stakeholders about PBM operations and business tactics-from a lack of transparency to controlling formularies-now PBMs are being accused of retroactively applying direct and indirect remuneration fees (DIR) to pharmacies.

DIR fees-arrangements between Part D plans/PBMs and pharmacies-include fees for network participation, periodic reimbursement conciliations, failure to comply with quality measures and the gap between a target reimbursement rate in a pharmacy agreement and the aggregated rate actually realized by a pharmacy. They fees often are assessed at different intervals rather than at point of sale (POS).

A paper commissioned by the Community Oncology Alliance and prepared by Frier Levitt law firm, describes original DIR fees as payments or other reimbursement received by PBMs from a variety of sources to lower the ultimate “true cost” of a medication. That has since transitioned into “backdoor” fees imposed by PBMs on pharmacy providers after a drug claim is submitted, adjudicated and even paid out to a pharmacy, according to the paper.

Complaint: Fees lack clarity, real-time assessment

The National Community Pharmacists Association (NCPA) argues that DIR fees lack sufficient disclosure to pharmacies or contracting agencies as to how they are calculated at the time of contract initiation or when fees are assessed and reported.

Ronna Hauser, vice president, pharmacy affairs, NCPA, calls DIR fees “one large take back or concession,” reconciled with no specific timeframe and no clarity as to which prescription they refer.

The primary objection is that DIR fees are not determined at the point of sale; instead, they retroactively claw back a portion of claims already paid rather than deducting them from claims in real time. The long processing period makes if difficult for small pharmacies to predict whether they are going to break even on a transaction and to manage their costs, she says.

“DIR fees are even muddier because they create a fee schedule around adherence and unpredictable quality measures at the plan level, not at the pharmacy level,” Hauser says. “There are exact guidelines for STAR metrics but not for DIR fees, which vary depending on a population or specific region. That makes these fees hard to track and account for, making it difficult to forecast costs.”

Ted Okon, COA executive director, agrees that DIR fees take on different forms and shapes under the guise of a quality proposition. “PBMs assess them arbitrarily; they don’t even relate to a specific drug,” he says. “They are a form of extortion but if we don’t pay, we are out of a PBM network.”

He points out that DIR fees are based on a drug’s list price, not the actual price and that PBMs have a vested interest in the highest list price in extracting rebates.

Next: CMS proposes guidelines

CMS proposes guidelines for DIR data reporting

In early June, CMS released proposed guidance for Medicare Part D reporting for DIR data for 2016. Plan sponsors are now required to report price concessions from pharmacies and incentive payments provided to pharmacies, making it easier for CMS to verify the accuracy of reported data and for pharmacies to determine how fees break out.

The guidance also updates the definition of “negotiated price” so that only payments not determined at POS can be considered DIR fees.

NCPA would like guidelines to go a bit further, requiring Part D plan sponsors to explain why certain fees cannot be determined at POS. “PBMs say fees cannot be approximated at POS but we disagree; anything can be,” Hauser says.

NCPA anticipates that CMS guidance will require plans/PBMs to reflect the fees in the adjudication process so that pharmacies will know their real reimbursement rate. “We are advocating for greater transparency so we will know how fees are determined when contracts begin and when they are actually assessed,” Hauser says. 

Specialty pharmacy adds fuel to fire

Community pharmacies are not the only ones expressing strong objections to DIR fees. “Each year, PBMs have increased the price they pay to pharmacies for a drug at the time of dispensing and then applied performance-based metrics, which are not based upon measures relevant to specialty pharmacies or that we can impact,” says Rebecca Shanahan, CEO of Avella Specialty Pharmacy and president of the National Association of Specialty Pharmacy (NASP).

“Seventy-five percent of performance fees are based upon metrics related to cholesterol, diabetes and hypertension-commonplace disease states for which we do not dispense medications. These ‘clawbacks’ are equal to or greater than the upfront reimbursement increases,” she says.

PBMs set the reimbursement they will pay pharmacies for the drugs they dispense and over the past three years, they have created performance-based pharmacy fees that were initially $1 or $2 per prescription but that have ratcheted up to 10% discounts off the cost of specialty drugs, says Shanahan. 

She contends that PBMs retain 30% of discounts they apply at the point of dispensing and 65% of discounts they collect after dispensing drugs-even for patients who have not received drugs for cholesterol, diabetes or hypertension. She says PBMs often apply DIR fees six months to 12 months after a drug is dispensed.

“This incentivizes PBMs to apply more discounts after dispensing, when they can retain the 65% of the discounts, and call these ‘savings,’” she says. She also questions the way metrics are tracked-often through an entire contracting network rather than by providing specific information about each patient.

Shanahan finds this process “unsustainable,” forcing Medicare Part D beneficiaries into the donut hole more quickly and making it difficult for specialty pharmacies to provide services while already riding on razor-thin margins.

“This means that for many drugs there is a negative margin before we even deliver a specialty drug and offer our services, such as helping patients navigate the system, manage their medications, get the right drug in the right dose at the right time and dispensing,” she says. 

Next: Relationship to plan premiums

DIR fees reduce plan premiums

Becky Rabbitt, vice president, government programs, Medicare, Express Scripts, rebuts that paying incentives for quality to pharmacies to drive adherence and decrease high-use medications can be done at point of sale. “It has to be continued over time,” she says.

Two years ago, Express Scripts conducted a pilot program testing a risk and reward program for pharmacists, paying incentives for quality. If pharmacists drove adherence and decreased high-use medications, they received an incentive; if they didn’t perform as well as their peers, they received a penalty. “This couldn’t be done at point of sale,” Rabbitt says.

She says that if pharmacists don’t drive quality, then DIR fees go back to insurers who can then reduce premiums. “If these monies are applied at POS, the reduced costs at POS must be covered by increased premiums. POS cost reductions benefit only those that take medications, while DIR fees help everyone in a health plan by providing lower premiums.”

Rabbitt adds, “Pharmacists don’t like DIR fees and want them to be reconciled at POS, which doesn’t allow plans to drive STAR metrics. There would be no incentive for pharmacists to do anything but fill scripts.”

She says pharmacies don’t read or understand their contracts related to DIR fees and that they have to change their way of doing business based on quality. “We see different levels of engagement from pharmacists; some are not paying attention to adherence,” she says. “They need to understand the fees’ impact on premiums.”

Mari Edlin, a frequent contributor to Managed Healthcare Executive, is based in Sonoma, California.