Direct, Indirect Remuneration Fees Harmful to Many Except These Managers

FEBRUARY 06, 2017
Laurie Toich, Assistant Editor
Recently, pharmacy benefit managers (PBMs) have begun charging providers direct and indirect remuneration fees (DIR fees), which has resulted in many specialty pharmacies and physician-run practices closing their doors or increasing costs.

With prices already high for specialty drugs that treat life-threatening conditions, such as cancer, these DIR fees have the potential to harm patients, according to a new study commissioned by the Community Oncology Alliance (COA). DIR fees not only lack transparency, but also increase costs paid by Medicare and its beneficiaries, according to the study.

These fees were originally introduced by the Centers for Medicare and Medicaid Services (CMS) to account for the net amount paid by Part D plan sponsors. Unfortunately, PBMs have drastically changed the original concept in a way that has led to inaccurate drug reimbursement rates, according to the report.

This revised process causes drug costs to increase for Medicare and its beneficiaries, and providers who are now being reimbursed well below cost. “DIR Fees charged by PBMs harm patient pocketbooks and care,” Jeff Vacirca, MD, president of COA, said in a press release. “The fees drive the cost of vital but expensive cancer drugs even higher; increasing patient out-of-pocket costs and driving them in the ‘donut hole,’ where co-pays are higher. The costs also force too many patients to cut back or even abandon their treatment, jeopardizing their care and threatening their lives. Ultimately, these capricious fees also limit patient access to care by placing a financial burden on cancer care providers who are being strong-armed into paying up to a 9% tax by PBM corporations. This has to stop.”

With 4 PBMs controlling more than 80% of plans, these companies can leverage their market power to charge DIR fees. If specialty pharmacy providers do not wish to pay these fees, they risk losing a large share of their patients, likely being forced to close due to diminished revenue, according to COA.

Under DIR fees, PBMs are able to claw back millions of dollars from contracted pharmacies. The fees can include charges for being included in Part D preferred networks, payment reconciliations based on contracted rates, payment adjustments based on quality metrics, or a combination of the fees, according to the report. For example, a pharmacy may purchase a particular drug for $85 from a wholesaler, and put in a claim for $100. The PBM then pays the pharmacy the submitted amount, but will later claw back $7, which cuts their profits in half. These fees also tend to come at a later date in time, rather than at the time of purchase, which can lead to pharmacies receiving large bills months later. PBMs tend to not refer to DIR fees as such, but rather call them network rebates, performance payments, or network variable rates to avoid reporting the amount back to the CMS, according to the study.

In some cases, if the payments are not reported, the fees are not returned to Medicare. Currently, there is little evidence that these fees are paid back to Medicare, which costs the program and taxpayers a substantial amount of money. The CMS, along with the Department of Health and Human Services(HHS), must work with PBMs to make these fees more transparent, and transfer more money back to Medicare, according to the study. Without transparency, DIR fees have the potential to inflict substantial harm to patients, Medicare, providers, and the healthcare system. This practice results in Medicare beneficiaries reaching the “donut hole” in Part D coverage, in which they have spent their limit on prescription drugs, but have not yet reached the catastrophic coverage threshold. In the donut hole, beneficiaries must pay for the drugs out-of-pocket until they reach catastrophic coverage where Medicare will pay for 80% of costs. HHS has estimated that more than 25% of beneficiaries who reached the donut hole will fail to adhere to their treatments. Nonadherence results in poor health outcomes, and increased costs for Medicare from the utilization of avoidable healthcare services, according to the report.

Since many more beneficiaries are being pushed into the donut hole, and will likely reach catastrophic coverage, Medicare is also responsible for additional cost-sharing as a result of DIR fees. Not only do DIR fees increase upfront costs paid by the beneficiaries, it also increases federal spending on Part D drugs. 

Additionally, DIR fees provide PBMs with financial incentive to dramatically increase, rather than decrease, drug costs, the study found. PBMs have long vowed to decrease costs for patients and the healthcare system through implementing various tools. However, percentage-based DIR fees encourage PBMs to increase costs so they can claw back a larger amount of money from pharmacies. In cases with Mylan, Novo Nordisk, and Amgen, PBMs pressured the manufacturers to increase drug costs through the demand for higher rebates and fees, which the PBMs keep a portion of, according to the report. Higher drug costs, in turn, increase out-of-pocket costs for patients, pharmacies, and insurers. These costs may cause pharmacies to shut down businesses, and could result in patients struggling to pay for their medication.

Federal lawmakers have only begun to understand the impact of DIR fees on Americans. The CMS previously voiced concerns over negotiated price reporting where plan sponsors, which are sometimes PBMs, were failing to report DIR fees as price concessions included in the negotiated price, according to the report. The negotiated price is the payment that pharmacy providers will receive for a certain drug claim.

By reporting these fees in varied ways, the CMS feels that Part D pricing data may be inaccurate, and may lead to further issues with bidding and cost reporting. In response, the CMS revised the definition of negotiated price to ensure the data was standardized, and providers could receive an accurate picture of how they would be reimbursed. However, several opponents of the changes challenged the CMS, alleging that the proposed regulations would violate federal law. Although the revisions were not adopted, Senators and Representatives have tried to persuade CMS to move forward to increase the availability of accurate data for beneficiaries, according to the study.

More recently, lawmakers introduced a bill to stop the use of DIR fees by Part D sponsors and PBMs, but it expired at the end of 2016. However, it is very likely that the bill will be reintroduced this year due to mounting concerns over DIR fees and increasing drug costs. The authors wrote that the implementation of DIR fees benefits only PBMs, with Medicare, patients, and providers bearing the costs. These fees are not based on Medicare regulation, and may even violate federal laws, according to the study. DIR fees result in overall Medicare spending, which is paid by taxpayers, and inflates negotiated prices due to inaccurate reimbursement claims. To prevent further harm to Medicare patients who may stop taking their prescribed medications due to high costs, CMS and lawmakers must take action against PBM DIR fees, according to the authors. The Obama administration started the scrutiny of these actions, and it is up to the Trump administration to continue expressing concerns over the lack of transparency and drug costs, the study concluded.

“The dirty little secret is that PBMs—once seen as the key to controlling drug costs—are actually driving them up for everyone,” said Ted Okon, executive director of COA, in a press release. “As we begin to focus on the cost of drugs, part of the conversation must be DIR Fees, another example of a made-up, contrived tool used by PBMs to feed profits at the expense of patients, the Medicare program, and Pharmacy Providers. President Trump has vowed to tackle prescription drug costs—a good place to start is looking at what the PBMs are doing to fuel those costs.” 

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