DIR fees: Executives weigh in on the implications for independent pharmacies

DIR fees have been a thorn in the side of independent pharmacies for many years.

What are the ramifications of these burdensome fees and where is the industry headed in terms of eliminating them? To answer these questions, DSN turned to Yvonne Gallagher president of Sav-Mor, Anthony Codrean, vice president of pharmacy, and Brandon Peiffer, vice president of operations Sav-Mor Pharmacy Services.

Drug Store News: Please explain what direct and indirect remuneration fees, or DIR fees, are.
Yvonne Gallagher: When a patient picks up a prescription, the pharmacy sends an instant message to the pharmacy benefit manager, or PBM to see if the drug is covered on the patient’s formulary.  The PBM then sends back a response telling the pharmacy how much they are going to pay for the drug. The DIR fee comes into play about 3 months after the payment was made, telling the pharmacy that there is an additional fee that they need to pay back to the PBM.  That is the PBM DIR fee charged to the pharmacy.

Anthony Codrean: DIR fees are charges that PBMs impose on pharmacies well after the patient leaves the pharmacy. 

Brandon Peiffer: Often times these fees come weeks or even months after a pharmacy claim has been paid.

DSN: What are the ramifications of DIR fees for community pharmacies and patients in rural areas?
AC: Retroactive DIR fees destabilize pharmacy businesses and have forced many of them to close their doors, depriving communities of the accessible, high-quality care that pharmacists provide. This drives up out-of-pocket drug costs for patients, which has a negative effect on adherence to medication regimens and can lead to poorer outcomes and expensive hospital stays. The COVID-19 pandemic confirmed pharmacies’ crucial role in individual, community and public health. When pharmacies close, patients lose access to testing and vaccination sites, not to mention the patient care and medication expertise they have always received.

YG: Even when a patient has a 100% copay paying cash for the prescription, the pharmacy will receive a negative DIR fee from the PBM.  In these cases, the drug would have been less expensive to the patient if they could just pay cash, however, the pharmacy charges cash the patients adherence is not registered with the PBM, making the pharmacy’s compliance rate lower, which in turn increases the pharmacies DIR fees.  Vicious circle.

[Read more: NCPA to CMS: Address 91,500% hike in DIR fees] 

DSN: Why is it crucial for the industry to speak with one voice to reach state senators and representatives regarding these practices?
AC: Retroactive and opaque DIR fees offer no advantage for Part D beneficiaries and according to CMS, DIR fees have skyrocketed 91,500% since 2010. Part D plans and PBMs do not use the fees they claw back to reimburse or otherwise reduce beneficiary cost sharing.

BP: The PBMs and the lobbyist that they employ are particularly good at hammering home the message to plan sponsors, legislators and customers that this practice is necessary to reduce prescription drug costs. Even though their message is false and has been proven so many times, they are well funded, unified and powerful. Many times, theirs is the only message that decision-makers hear.

If you are in the pharmacy industry you certainly hear the same messaging repeatedly. Usually, several times a day. However, this message almost never makes it to those outside of the industry, most importantly to those who can affect change. I have had the privilege to speak face to face with individuals who need to hear what is going on, and when this happens their reaction is always disbelief and disgust. The problem is that the pharmacy industry has not been cohesive and persistent enough to counteract the players on the other side of the debate stage. So, the message never gains enough traction.

DSN: What is impeding the elimination of DIR fees?
AC: Previous administrations of both political parties have failed to finalize and adopt any policies or regulations through the rulemaking process which would have minimized or eliminated DIR fees. Groups and organizations such as NCPA have been working diligently to inform and educate the Biden Administration of its members’ situations and advocating on behalf of members.

BP: Consolidation, vertical integration, and lack of transparency.

Short answer is powerful lobbying and political contributions are what is impeding the elimination of DIR fees.

YG: The PBMs have endless lobbyists in every state.  Every time there is legislation in any state, the PBMs use millions of dollars to fight the legislation that is trying to protect the pharmacies and their patients.

[Read more: Seeking reform: DIR fees in the spotlight amid push to rein in drug costs]

DSN: What progress has been made in eliminating DIR fees?
AC: Since 2016, there have been over 6,400 member comments on DIR advocacy from various entities advocating for change in either eliminating DIR or at least providing them at the point of sale. Letters have been submitted to CMS, HHS, POTUS and OMB and state pharmacy associations requesting for inclusion of DIR language to be added to upcoming rules. Stakeholder letters, Congressional letters and even patient/consumer letters have been sent to senators, representatives, and courts to address DIR fees in the rulemaking process.

DSN: What is the state of Michigan doing to battle DIR fees?
AC: House Bill 4348 would prohibit PBMs from reimbursing pharmacies affiliated with the PBM more than non-affiliate pharmacies; prohibit patient steering to PBM-owned pharmacies; prohibit retroactive clawbacks; require reimbursements be based on the National Average Drug Acquisition Cost, (instead of their below cost MAC reimbursements) an objective benchmark that accurately reflects the true market costs for Michigan pharmacies; and establish fair audit procedures for community pharmacies.

DSN: Are you working with the National Association of Chain Drug Stores and the National Community Pharmacists Association on this issue? In what ways have these organizations supported the cause?
YG: Yes, we are working with NCPA and NACDS and other industry groups.  We have sent pharmacy reports, consumer complaint letters and samples of the annual DIR fees taken from our pharmacies each year.

DSN: What advice do you have for other states?
BP: Learn from the success of other states, and work with them to get comprehensive, and fair legislation done in your own state. Far too often I hear that nothing can be done at the state level, and that it is a federal issue. But that is just deflecting. The federal government is just too slow, and too partisan currently, and time is of the essence. Many states have had some remarkable success at passing legislation that helps to limit PBM overreach and level the playing field. Remember, this is not just a DIR issue. This is a predatory business practice with many factors that will lead to thousands of businesses being closed. Inevitably this will cause healthcare costs to rise, jeopardize patient care and lead to much pain and suffering.

DSN: How can states work with the federal government to alleviate the burden on community pharmacies?
BP: I believe that they can. However, the process will be slow, and it may be too late. The momentum needs to continue at the state level, which could catapult change at the federal level.

DSN: What message do you want to send to regulators?
BP: Stop taking the word of the PBMs that they are helping to reduce healthcare costs and improve outcomes. There is not an ounce of objective evidence to suggest that. And if you need proof of that, if the PBMs were helping to lower healthcare costs, why are out of pocket costs going up, costs to the federal government are going up, drug costs are going up, and in every area of the country, the amount of profit at pharmacies has gone down dramatically? Meanwhile, the three largest PBMs, who control 77% of the prescription claims in this country have seen their profits explode. A huge portion of the overall spending on prescription drugs is routed to the middlemen, who have very little skin in the game, and have every incentive to drive the costs up.  PBMs spoon feeds false information, and nobody calls them out on it. Mainly because there is nothing to say that they need to be transparent.