June 15, 2018
Inside: Here’s a look at the strategies for independent pharmacies to take control of direct and indirect remuneration fees (or DIR fees) and the push to end them.
Independent pharmacies continue to combat direct and indirect remuneration (DIR) fees that create extra costs for pharmacies, patients, and the healthcare system. In a February 2018 survey by the National Community Pharmacists Association (NCPA), community pharmacists voted DIR fees as their top legislative or regulatory obstacle. These fees claw back profit from unsuspecting pharmacies after the point-of-sale, which can be detrimental for business.
“In most cases, it’s months before pharmacy owners see the impact of DIR fees to profitability. By then it’s too late to take action to impact margin,” said Melanie Maxwell, Senior Vice President, Pharmacy Services at Pharmacy Providers of Oklahoma Inc. (PPOk), an organization that negotiates third party contracts for independent pharmacies. “Pharmacies are being forced to unknowingly fill prescriptions below cost. And their number one tool to quickly adjust to changes in profitability—price shopping for drug acquisition—has been taken from them because of retroactive DIR.”
Over time, DIR fees have only gotten worse. According to a January 2017 fact sheet published by the Centers for Medicare & Medicaid Services (CMS), DIR fees increased by 22 percent per year between 2010 and 2015. “Part D sponsors and PBMs are engaging to a greater extent in arrangements that feature compensation after the point-of-sale, and the value of such compensation is also generally increasing,” the report said.
None of this is news to independent pharmacies. You’ve experienced the squeeze of DIR fees for years. In a 2016 NCPA survey, 87 percent of community pharmacies said DIR fees significantly affect their pharmacy’s ability to provide patient care and to remain in business.
One pharmacist told NCPA that an initial profit of $53 turned into a net loss of $263 after the fees were applied.
Another pharmacist told NCPA, “[I]t is very hard to plan a budget or allow for the same amount of employees to remain at our store if we are uncertain as to how much we will actually make that week. We will be forced to cut back or lay off employees due to these fees.”
Even though pharmacies understand the detrimental effects of DIR, Maxwell said many pharmacies may not realize the extent of the techniques PBMs use to confuse the issue in pharmacies’ contracts.
“PBMs have made it virtually impossible for anyone other than themselves to estimate or project DIR liability. Contracts that contain DIR fees do not have specific enough language to tie a contract rate and DIR fee to an actual claim billed at point-of-sale,” she said. “PBMs continue to refuse to provide contract information on the claim transaction to tell pharmacies which contract applies.”
Although DIR fees remain firmly entrenched, momentum against them is building. The PBM tactic has faced greater national scrutiny recently, with major media outlets highlighting the practice and Congress introducing national bills to combat it. More than 115 healthcare organizations are currently pushing legislation to ban the retroactive fees, including the NCPA, which has heavily lobbied against them and whose CEO has written op-eds exposing the practice.
However, most advocates are working to eliminate the application of these fees after the point-of-sale, not to get rid of them entirely. “We are hearing significant noise from community pharmacy about the need to ‘eliminate DIR fees,’” Maxwell said. “In actuality, the work to address DIR fees is mostly focused on eliminating the retroactive element to DIR fees. Changes are being pushed to require PBMs to disclose DIR fees at point-of-sale. This effort just addresses the transparency issue.”
If pharmacies knew the fees upfront, they could adjust their business strategy to account for the losses to their bottom line. And ideally, make up for them.
“Eliminating DIR fees will restore a pharmacy’s ability to gauge profitability at point-of-sale, drug by drug, allowing more competition between drug wholesalers,” Maxwell said. “Pharmacies will also benefit by eliminating the need for complex accounting procedures to accrue for DIR fees that are virtually impossible to project.”
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Two bills currently under consideration in Congress address the transparency issue, which Maxwell said is the path to DIR elimination. The bills would prohibit Medicare Part D plan sponsors and PBMs from retroactively reducing payment on clean claims submitted by pharmacies under Medicare Part D.
The American Pharmacists Association (APhA) and NCPA back the bills. Both organizations said the bills will not only help pharmacies but will also save billions of taxpayer dollars by reducing inflated drug costs.
CMS has also started to push back against DIR. In a proposed rule published in November 2017, it requested comments on how to address the rising problem of DIR fees. After reviewing 1,400 comments on the issue, CMS said in its April 2018 final rule, “We believe the statute provides us with discretion to require that Part D sponsors apply at least a portion of the manufacturer rebates and all pharmacy price concessions they receive to the price of a Part D drug at the point-of-sale.”
Even though the fate of DIR fees hinges heavily on legislation, pharmacies don’t have to sit on the bench.
DIR fees depend in part on factors that pharmacies have influence over. “DIR fees are currently tied to pharmacy performance,” Maxwell said.
She said pharmacies can lower their DIR liability by:
Independent pharmacies can also gain leverage against PBMs by partnering with a third party network to negotiate their contracts.
“Pharmacies that utilize pharmacy services administration organizations (PSAOs) for contracting typically benefit from negotiated DIR fees as well as contract rates,” Maxwell said. “Pharmacies that have direct contracts with PBMs and are located in rural or underserved areas also have the ability to negotiate contract terms including DIR fees.”
Every pharmacy can use its voice.
NCPA offers independent pharmacies resources to get involved in advocacy, including letter templates to send to representatives and media suggestions for raising awareness. It also has a Legislative Action Center where you can stay up-to-date on current issues and find ways to participate.
Legislation currently introduced in the Senate and House is taking aim at DIR fees. Here’s how these bills could improve matters for independent pharmacies.
The bills will prohibit Medicare Part D plan sponsors and PBMs from retroactively reducing payments on clean claims submitted by pharmacies under Medicare Part D.
Prohibiting retroactive pharmacy fees will make the Medicare Plan Finder more accurate. It will also allow the Centers for Medicare & Medicaid Services (CMS) to have better oversight.
DIR fees punish Medicare Part D beneficiaries who use their drug plan to fill prescriptions. Retroactive fees lead to inflated drug costs, which are the basis for beneficiary cost-sharing amounts.
These bills will help independent community pharmacies stay in business, which means better care for patients. Often located in rural communities and inner cities, independent community pharmacies provide much-needed health care. The number of independent community pharmacies declines every year, putting patients in underserved communities at risk of losing the only pharmacy in their community.
1. Increase generic dispensing above 94 percent
2. Improve patient adherence in diabetes, blood pressure, and cholesterol
3. Complete all medication therapy management (MTM) cases through Mirixa and OutcomesMTM
4. Partner with a pharmacy services administration organization (PSAO)
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy side of their business. The company is an independently owned pharmacy services organization based in Kansas City, Mo., that serves independent pharmacies with group purchasing services, expert contract negotiations, distribution services, and more.
PBA Health, an HDA member, operates its own VAWD-certified warehouse with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products.
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