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Seeking reform: DIR fees in the spotlight amid push to rein in drug costs

Pharmacy groups address the implications of direct and indirect remuneration fees on pharmacies and their patients with policymakers.
Mark Hamstra

Prescription drug prices are once again taking center stage in the national political debate, which may indicate a prime opportunity for changes in the contentious relationship between care providers and payers around direct and indirect remuneration, or DIR, fees among others. 

Community pharmacies have long battled against DIR fees, which consist of various adjustments to the price of drugs covered under Medicare Part D that are assessed after the point of sale. These adjustments can be impossible to calculate at the time the pharmacy bills the patient, which leads to increased costs for patients and reduced income for pharmacies, according to the major pharmacy associations.

“Pharmacy DIR fees force community pharmacies to conduct business in an environment of perpetual uncertainty,” the National Association of Chain Drug Stores said in a statement to the Centers for Medicare & Medicaid Services in 2019. “For months after dispensing a medication, pharmacies are unsure of their reimbursement for that drug. This uncertainty is derived from not knowing whether and how much additional money will be clawed back at some future date due to imposed DIR fees.”

[Read more: EnlivenHealth, FDS Amplicare to showcase tech solutions at NCPA convention]

“At this rate, pharmacies are dispensing products at below their actual cost, and that just can’t continue. Pharmacies can’t survive on that model.”
— Ilisa Bernstein, senior vice president of government affairs, APhA

The industry alleges that a loophole in a Department of Health & Human Services rule has allowed DIR fees to escalate exponentially, and it is tackling this issue through legal, legislative and administrative channels.

The American Pharmacists Association and the National Community Pharmacy Association, along with several other groups, are parties in a lawsuit filed earlier this year that is seeking to force HHS to implement DIR reform that would close the loophole and make DIR fees visible to pharmacies at the point of sale. In addition, the industry is pushing for DIR reform through the budget reconciliation process in Congress and through support for H.R. 3554/S. 1909, known as the Pharmacy DIR Reform to Reduce Senior Drug Costs Act.

“DIR and other clawback mechanisms continue to be harmful both to patients and to pharmacies, and APhA is addressing this on several fronts,” said Ilisa Bernstein, senior vice president of government affairs at APhA. “Right now … this conversation is happening in Congress related to drug pricing, so we are very hopeful that Congress will take action here.”

[Read more: Poll results: Reimbursement top of mind]

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Ideally, many in the industry would like to see DIR fees eliminated altogether, but having them assessed at the point of sale would at least provide some degree of relief, she said.

Part of the appeal of DIR reform among members of Congress is the fact that DIR fees impact both pharmacists and patients.

“It helps at the pharmacy counter for patients because if the patient is paying a co-pay on an inflated price at the counter, then they’re paying too much,” Bernstein said. “If this is all moved up front, then what the patient is paying at the time is what their co-pay or co-share will be.”

[Read more: Poll: What is pharmacy’s biggest challenge?]

Pharmacies simply need to know when they dispense the drug what the actual cost of that drug is, including the impact of any rebates and fees, she said. “At this rate, pharmacies are dispensing products at below their actual cost, and that just can’t continue. Pharmacies can’t survive on that model.”

A Partnership with PBMs
The problem needs to be treated as a partnership between pharmacies and PBMs, Bernstein said. “We need to work together to make sure that patients have the ability to go to their local pharmacy, and to choose where they want to go.”

APhA disagrees with the assertion that DIR reform would actually end up costing beneficiaries more, she said. “It’s a matter of ensuring that all of the facts are laid out for Congress and they can see really what needs to be done here and what’s the right way to go. CMS can also approach this and fix it on their own, but at the same time, Congress can expressly fix this as well.”

[Read more: NCPA’s Hoey, HHS head Becerra discuss community pharmacy priorities]

The APhA-NCPA lawsuit is currently making its way through the U.S. District Court in Washington, D.C., where HHS has filed a motion to dismiss.

In addition to the lawsuit and potential congressional action, the APhA and other groups are also working at the state level to gain greater transparency and to reform the current relationship with PBMs. Several states have taken action and “the trend is moving towards greater oversight in the states,” Bernstein said.

“Having a federal fix that’s more uniform would be very helpful, but we need to approach this from all angles,” she said.

Ronna Hauser, vice president of policy and pharmacy affairs at the NCPA, agreed, adding that congressional action through the budget reconciliation process could be the “quickest, surest route” to DIR reform.

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“We’ve been working diligently for years to try to fix DIR one way or another, whether it’s legislative, administrative or legal,” Hauser said. “We’ve been in close contact with the Senate Finance Committee, and we know Chairman [Ron] Wyden is supportive of DIR reform … so we’re definitely hopeful that we will see reform included.”

She counted DIR reform among the NCPA’s top two priorities in the current budget reconciliation effort, along with a ban on Medicaid and Medicare spread pricing, through which the association alleges that pharmacies are under-reimbursed.

“We have been talking to all our champions on the Hill, especially the majority leadership, members in Congress and the requisite staff and all of the committees of jurisdiction,” Hauser said. “We’re making sure the independent pharmacies’ priorities are known and making sure there’s a pathway forward through all these discussions for our top two priorities.

[Read more: Organizations make push for pharmacy DIR reform]

“We know that there’s a lot more work to be done to get fair reimbursement for pharmacies and more transparent and fair reimbursement to pharmacies, but at this point, we’re still focused on just stopping the clawbacks,” she said.

Some actions on all of the industry’s efforts around DIR reform could take place during the coming weeks and months, but the specific timing remains uncertain. Even if there are changes to the way DIR fees are assessed, it will likely be another year or two before new processes and pricing are put in place, Hauser said, citing the time required to renegotiate contracts and the fact that much of the contract negotiation for next year has already been completed.

Retailers Seek Relief
Devan Conley, a staff pharmacist at TrueCare Pharmacy in Concord, N.C., said retailers like his end up at the mercy of insurers when it comes to setting prices for prescriptions.

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

“The people who care the most are at the very bottom of the chain, and we’re the ones doing the most work,” he said. “We’re the ones facilitating the discussion between the patients and the doctors. We’re the ones that are seeking those prior authorizations to the insurance company. We’re the ones facilitating all the discussions to make sure these drugs are covered.”

The unpredictable nature of DIR fees means that pharmacies need to take into consideration that insurers could seek to “claw back” as much as 10% of the price of a drug, Conley said. “That’s pretty hefty. Sometimes those DIR fees actually put you in the red on many claims. At first glance, it looks like you’re profitable, but then when you get this clawback, it’ll put you in the red.”

The uncertainty around the precise amounts that could be “clawed back” and other opaqueness in drug pricing practices turn accounting into a guessing game.

[Read more: DIR reform act gains praise from FMI]

“We’re trying to operate under the confines of a specific system, but ultimately, they don’t really give us clear expectations of that system,” Conley said.

Pharmacy audits conducted by payers add another level of complexity that pharmacies need to cope with, as rebates can be lost over minor clerical errors or when patients don’t adhere to their medication regimens.

Josh Young, owner of TrueCare Pharmacy, also co-founded a Medicare payment plan called Troy Medicare that seeks to make pricing more transparent for pharmacy operators.

Troy Medicare uses a metric called the National Actual Drug Acquisition, or NADAC, which Conley said enables the company to calculate a better estimate for drug prices. North Carolina Medicaid also uses NADAC pricing, he said.

[Read more: NCPA urges CMS clear, consistent quality measurements for community pharmacies]

Troy Medicare also does not charge DIR fees and pays pharmacists a fair dispensing fee for the services they provide, Conley said.

“They don’t charge DIR fees because they’re trying to show CMS that it’s not necessary to charge,” he said. “You can have a viable business and you can have a plan that covers people’s medications, without requiring the use of DIR fees.” The plan has been gaining traction among providers in North Carolina, Conley said. “It’s a good model — it empowers those in the driver’s seat to actually take care of the patient,” he said.

“You can have a viable business and you can have a plan that covers people’s medications, without requiring the use of DIR fees.”
— Devan Conley, staff pharmacist, TrueCare Pharmacy

Technological Solutions
Some pharmacies also have turned to technological solutions to solve their challenges around DIR fees.

[Read more: NACDS urges House subcommittee to reform DIR fees, standardize performance measures]

“About 80% of patients are not on the most cost-effective plan,” said Nathan Shanor, vice president and general manager at FDS Amplicare, which provides a service that compares plans for all of a pharmacy’s patients in order to find opportunities for cost savings.

“It analyzes patient costs and pharmacy reimbursement DIR info to identify opportunities where patients can save money by switching to a better plan that also provides a great financial outcome for the pharmacy,” he said.

For example, Dilworth Drug & Wellness Center in Charlotte, N.C., worked with Amplicare last year to identify high-priority patients who could benefit from lower out-of-pocket costs and drive higher profitability for the pharmacy by switching plans, according to a case study posted on the Amplicare website. The pharmacy was able to switch 81 patients to mutually beneficial plans, which resulted in a $10,973 decrease in DIR fees, compared with the preceding year, and a $40,126 improvement in gross profits.

[Read more: NCPA files lawsuit against HHS to eliminate pharmacy DIR fees]

A typical pharmacy might have more than 500 Medicare patients, Shanor said, making it difficult for pharmacists to review all of the plans available to them. “Pharmacies need to quickly identify patients who will be at a disservice if they don’t switch to a different plan, whether it’s because of a formulary change, preferred status change or a general raise in out-of-pocket costs.”

Pharmacists also sometimes lack sufficient knowledge to counsel patients on Medicare Advantage plans, which take the patient’s doctor into consideration, Shanor said. FDS Amplicare provides training, free patient communications and access to Medicare experts who can help pharmacies assist their patients, he said.

An analysis of all stores using the FDS Amplicare plan finder revealed that the average pharmacy saw 27 profit opportunities by switching patients to a cheaper plan, Shanor said, and each opportunity represented an increased profit of $210.

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