DIRs: PBMs Pay Less Each Year While Prices Go Up

What if I told you I had a new business model, one that lets me pay less every year for goods whose price consistently goes up, collect more in revenue from my customers, and stick the federal government with the resulting costs? You’d probably figure I should be retired or in jail.

Unfortunately for me, I won’t be ending  my career anytime soon. But I can tell you about businesses that are doing that exact thing. They are pharmacy benefit managers (PBMs) , and they’d probably rather you not know about it.

Most of you are familiar with Medicare Part D direct and indirect remuneration (DIR) fees and know them as just another headache that comes along with your PBM contract. In a nutshell, when a DIR fee is collected, the price you see when you file a drug claim is not the amount your pharmacy will receive. When the next statement from the PBM comes, you’ll notice an amount has been deducted from what you saw when the prescription was filled. Why? If you have a few hours (or days) to comb over your PBM contracts you may be able to figure it out. Most of us don’t have that time though, so these DIR fees have the practical effect of making managing cash flow and budgeting even more challenging.

Why not just tell us what we’re getting? I can’t speak for the PBMs, but digging a little deeper can give you a good clue why.

The key is that the amount of money that determines when a Medicare beneficiary goes into the infamous “donut hole” and then out into the “catastrophic” coverage phase is based on the amount you see when you file the claim at the point of sale, and not the total after DIR fees are deducted. Once a beneficiary reaches catastrophic coverage, Medicare covers 80% of costs, the plan sponsors 15%. Put another way, getting a beneficiary into catastrophic coverage  works to the advantage of the plan sponsors, and to the disadvantage of everyone else.

But while the DIR fee amounts we see are certainly a pain in the neck, do they make that much of a difference? I’ll throw out some numbers that may help you decide. From 2010 to 2015, drug costs for Medicare Part D have gone from $77.5 to $137.4 billion annually. During that same time, the amount that plan sponsors spend per beneficiary has decreased from $798 to $666. And while plan sponsors argue that their decreased liability puts downward pressure on premiums, those premiums still have gone up 8.9% in that time. Paying less for things that cost more. As the old saying goes, nice work if you can get it. The difference between higher costs and decreased plan liability has to be made up somewhere, and most of you can probably guess where that is. Medicare subsidies have gone from $390 to $808 per beneficiary, growing at an annual rate of nearly 17%.

And we’re stuck at times with dispensing medications for less than we paid for them.

There is a solution on the table. Two bills in the current Congress,H.R. 1038 and Senate Bill 413, would end  DIR fees and make the amount you see when you file a claim the amount you are paid. Here’s hoping that’s one sensible thing that will come out of what’s sure to be a topsy-turvy year in Washington, DC.