New Reports Show Skyrocketing DIR Fees

Two new reports quantify the problem that community pharmacists have experienced firsthand: direct and indirect remuneration (DIR) fees are skyrocketing, causing some pharmacies to go out of business.

DIR fees have skyrocketed by 1600% in the last 5 years, totaling $8.5 billion since 2013, according to a new policy analysis from XIL Consulting.¹ Pharmacy benefit managers (PBMs) are profiting from DIR fees in excess of 500% per prescription, compared with the average PBM administration fee, XIL noted.

“A loophole in the program allows health plans and PBMs to pocket an excessive amount of pharmacy DIR fees rather than offset prescription costs for seniors,” XIL said.

In a separate report, Drug Channels Institute (DCI) estimated that DIR payments reached a whopping $9.1 billion in 2019.² Approximately 18% of total Medicare Part D rebates are now paid by pharmacies, not manufacturers, DCI said.

“To address concerns about how these fees are computed, the Centers for Medicare & Medicaid Services (CMS) has proposed some minimal transparency requirements for monitoring the metrics behind DIR fees. I suspect that the proposal will have no near-term impact on slowing the growth trends,” Adam J. Fein, PhD, CEO of Drug Channels Institute (DCI) wrote in an article on DCI’s website.²

“It should be shocking to state and federal lawmakers and regulators that pharmacy benefit manager corporations are using a government loophole to squeeze billions of dollars in fees from pharmacies, that those fees are driving up the cost of prescription drugs for patients, and that the sickest people in the country are subsidizing insurance premiums,” said NCPA CEO B. Douglas Hoey, RPh.

“These companies were formed to manage the cost of prescriptions, but the prescription costs have skyrocketed along with PBM profits,” Hoey said. “Once upon a time, Medicare Part D was hailed as a godsend but now the middlemen have figured out how to game the system and the results are fewer pharmacy choices and higher prescription costs.”

However, the Pharmaceutical Care Management Association (PCMA) countered the reports in a statement provided to Drug Topics®.

“We all need to be accountable for helping consumers access safe and affordable prescription drugs while keeping their insurance premiums at a minimum,” PCMA said. “PBMs are committed to paying for value and ensuring quality, keeping affordable patient care first. But independent drugstores want to avoid being held accountable, so they can make more money, forcing Medicare beneficiaries to pay higher premiums and costs. Congress should support value-based care and preserve direct and indirect remuneration (DIR).”

However, DIR fees are causing many pharmacies to close. From July 2018 to July 2019, the number of pharmacies nationally have decreased by 3.8%, according to XIL’s analysis.¹

“Rural pharmacies have been impacted tremendously with a 16% reduction since the introduction of the Medicare Part D program. Fifty-one percent of these rural communities are now considered pharmacy deserts,” XIL said.¹

In related news, NCPA is endorsing H.R. 5281, the Drug Price Transparency in Medicaid Act, which would ban the use of spread pricing by PBMS in Medicaid managed care, according to a support letter.³

“Currently, PBMs can overbill Medicaid managed care programs, under-reimburse pharmacies for medications dispensed, and retain the difference, which is referred to as the ‘spread’,” NCPA wrote in the letter.³

Studies of Medicaid managed care programs in Ohio, Michigan, Kentucky, and New York as well as a state auditor’s report in Pennsylvania have indicated that PBMs are using spread pricing as a way of overcharging taxpayers for their services, NCPA added.³