DIR Fees Have Wide-Ranging Impact on Specialty Pharmacy


National Association of Specialty Pharmacy commissions white paper that explores how direct and indirect remuneration fees affect the specialty pharmacy landscape.

As controversy surrounding direct and indirect remuneration (DIR) fees continues, both traditional and specialty pharmacies have been speaking out against the damaging effect these fees have on the Medicare Part D program, Medicare beneficiaries, and the pharmacies themselves.

The concept of DIR is not new to Medicare. The term was first coined by CMS to capture the “actual cost” of a prescription drug and any post point-of-sale price concessions.

But in 2016, a significant change in the administration of DIR fees was made by select pharmacy benefit managers (PBMs) and plan sponsors against pharmacies and specialty pharmacies that participate in Medicare Advantage and Medicare Part D pharmacy networks across the nation.

The National Association of Specialty Pharmacy (NASP) commissioned Frier Levitt, LLC, to help develop a newly released investigative white paper, which explores the impact DIR fees have on specialty pharmacies.

“We expect that this white paper—–being that it’s very focused on DIR fees, but also speaks to other issues impacting specialty pharmacy practice as well––will be a platform from which we can continue to educate and raise awareness to what makes a specialty pharmacy special and different from the other pharmacy practice settings, and why some of the current business practices prevalent in our industry are particularly problematic for specialty pharmacy, and of course to Medicare beneficiaries, the Medicare plan, and then ultimately patients and tax payers,” Sheila Arquette, executive director of NASP, told Specialty Pharmacy Times. “Because anytime you increase cost and/or decrease access, the impact to patient care is spread across the entire health care continuum.”

Performance-Based DIR Fee Programs

DIR fees can comprise of several charges to specialty pharmacies, such as pay-to-play fees for preferred pharmacy networks, network access fees, and administrative fees. In particular, performance-based DIR fees have sparked outrage among specialty pharmacies.

“Performance-based DIR Fees have effectively clawed back millions of dollars from Specialty Pharmacies nationwide, and have detrimentally impacted Medicare Part D and its beneficiaries, and threaten the future of patient care access and choice,” the white paper authors wrote.

Typically, performance-based DIR fees are based on a pharmacy’s performance in different quality metric categories established by the PBM. These categories are weighted, with some weighing as much as 25% and others as little as 5%. Some of the categories include ACE/ARB adherence, statin adherence, diabetes adherence, Comprehensive Medication Review completion rate, and formulary compliance.

Performance within these categories determines the amount of DIR fees against a pharmacy, with lower performing pharmacies assessed a higher percentage-based DIR fee, whereas better performing pharmacies receive lower DIR fees. Performance-based DIR fees can be flat-fee-based or percentage-based.

Generally, each pharmacy will be assessed for DIR fees based on these fixed quality metric categories, regardless of whether the pharmacies have a claim subject to the reporting and measurement criteria, according to the authors. This means specialty pharmacies will be judged by select PBMs using the same set of quality metric categories, even if the business model of specialty pharmacies renders the categories virtually inapplicable.

Circumstances in which a specialty pharmacy does not fill claims that fall within a certain quality metric category have the pharmacy receiving the Part D plan’s representative performance score for that category for that review period, according to the authors. Thus, a performance score is often dictated by average performance scores of other retail pharmacies within the network, regarding products specialty pharmacies generally do not dispense.

“Based on the imposition of the average performance scores of other retail pharmacies within the network, the DIR Fees imposed on specialty pharmacies in these cases are largely unrelated to the specialty pharmacy’s performance, medications dispensed, or services provided,” the authors wrote.

Specialty pharmacies also take a blow from the PBM’s timing of assessing DIR Fees. DIR fees are calculated retrospectively, which means they are assessed against specialty pharmacies many months after the drug has been dispensed to the patient and the specialty pharmacy received its reimbursement.

Following this timeline, causes immense uncertainty for specialty pharmacies at the time the medication is dispensed, regarding how much they will be reimbursed for the product. This makes it nearly impossible for specialty pharmacies to properly account for projected revenues and cash flows.

The lack of visibility jeopardizes the ability of specialty pharmacies to continue providing necessary and comprehensive patient support services to Medicare Part D plan participants. Thereby, it will diminish the level of care and treatment for patients who need it the most.

DIR Fees Negative Impact on Specialty Pharmacies

Specialty pharmacies are responsible for medicating some of the nation’s sickest and most vulnerable patients. A vast majority of the medications are extremely complex and typically require special handling in processing claims, as well as packaging of the drugs.

“Unfortunately, PBM-imposed performance-based DIR fees have had a severe and disparate impact on specialty pharmacies,” the authors wrote. “Specialty pharmacies have no ability to influence, control, or drive the quality measures utilized by PBMs in many of their current DIR Fee programs, yet PBMs nevertheless assess DIR fees—–whether flat-fee or percentage-based––against specialty pharmacies for measure they have no ability to control.”

Because of the unique landscape of specialty pharmacy, post-hoc DIR fees often lead to unreasonable, below-acquisition, reimbursement rates that impact the ability of specialty pharmacies to continue providing critical support services to Medicare Part D patients, according to the authors.

The DIR fees also frequently force specialty pharmacies to dispense drugs that are significantly below their acquisition costs.

Effects of DIR Fees on Specialty Pharmacy Reimbursement

Compared with the distribution of traditional brand and generic retail medications, the manufacture, sale, and distribution of specialty products are substantially different. Specialty pharmacies use of alternative distribution strategies limit their ability to search for lower acquisition costs, and reduce leverage to negotiate with wholesalers and manufacturers for lower costs. As a result, specialty products are typically more expensive than retail drugs, but the markups for the products are often much lower than retail drugs, with most specialty products having margins no larger than 6%.

A combination of small margins and higher drug costs means that percentage-based DIR fees often prevent any profit, placing specialty pharmacies in the red and driving them out of the Medicare Part D marketplace.

“This has the effect of decreasing competition for PBM-owned specialty pharmacies and ultimately increases Medicare’s drug spend, all while restricting medication access and limiting beneficiaries’ freedom of choice,” the authors wrote.

Specialty pharmacies are known for the hands-on services they provide, such as enhanced patient consultation, obtaining additional information from the prescriber, consulting with nursing staff, completed REMS program reporting, sensitive packaging based on specialty medication, and seeking charitable funding support for patients who need financial assistance.

As part of a reimbursement system that may put a specialty pharmacy below water, PBMs are shifting the financial liability for providing services ancillary to filling prescriptions to independent specialty pharmacies, forcing them to do it at a loss or not at all, according to the authors.

The disproportionate negative impact of DIR fees on specialty pharmacy does not only effect limited distribution drugs. In fact, many specialty drugs and products that are subject to an open distribution model are hit with excessively high and unreasonable percentage-based DIR fees.

DIR Fees Push Medicare Part D Beneficiaries into the Catastrophic Coverage Early

Not only do DIR fees have a negative impact on Medicare beneficiaries, but the entire program as a whole. Recent CMS studies found that DIR fees shift financial liability from the Part D plan sponsor to the patient, then to the federal government, through the Medicare’s catastrophic coverage

Post point-of-sale imposition of DIR fees may cause Medicare beneficiaries to enter the Medicare donut hole prematurely. Furthermore, out-of-pocket costs for beneficiaries in the coverage cap and in the catastrophic coverage phase are based on a percentage of the total cost of the drug.

In the coverage gap phase, a beneficiary’s out-of-pocket cost can be as high as 51% of the cost, whereas in the catastrophic coverage phase, the beneficiary’s out-of-pocket cost can be as high as 5% of the cost of the drug.

Regardless of whether the DIR fees are percentage based or flat fee, they increase the ultimate costs borne on Medicare beneficiaries, because the drugs cost at point of sale is artificially inflated, according to the authors. The impact is exaggerated in the specialty drug context because of the drugs’ high price tags, the paper noted.

The inflated point-of-sale prices cause costs to shift from the Part D plan to the Medicare program, and ultimately to the taxpayer.

“In the specialty pharmacy industry, DIR fees do not just represent a threat to specialty pharmacies’ profits—–DIR fees represent an existential threat to specialty pharmacies’ continued ability to deliver the patient care support services required to achieve maximal therapeutic outcomes for Medicare Part D beneficiaries as a class of providers focused on providing high-quality, high-touch services to the most vulnerable of patient populations,” the authors wrote.

The white paper calls for immediate action to curb the “opaque and abusive practices,” citing the need for CMS to clarify Medicare definitions and reign in the abusive conduct, as well as the need for Congress and stakeholders to act.

“[The white paper} is our attempt at educating the public, as well as the members of Congress and our legislators as to what is going on with respect to DIR fees and the impact on pharmacy practice,” Arquette told Specialty Pharmacy Times. “We anticipate that the reader gains an increased understanding of what exactly a DIR fee is, the financial impact that DIR fees are having on specialty pharmacies, the reason why they’re problematic, how they’re threatening the specialty pharmacies’ ability to provide the high-touch white glove services that they pride themselves on to Medicare beneficiaries, which will in turn compromise the quality of care that Medicare beneficiaries receive, in addition to compromising, potentially, the access to these life-saving, life-changing medications.

Arquette added that NASP expects to use the paper as a platform to advocate on behalf of specialty pharmacy and the patients they serve. She also pointed to Any Willing Provider provisions and PBM contracts as issues that NASP seeks to address.

“We will develop specialty pharmacy specific quality metrics to which specialty pharmacies can be measured,” she added. “Currently, the measures being utilized do not apply to specialty pharmacies nor the medications that they dispense, so specialty pharmacies really don’t have the intended result of positively influencing the outcomes or the management of the patients’ disease states for which they’re being measured. The measures are more primary care-focused, or they are designed to measure what a retail pharmacy can positively impact. We are also interested in exploring the establishment of minimum network adequacy standards for specialty pharmacies in Medicare regulatory guidance, and exploring with pharmaceutical manufacturers the plausibility of establishing a specialty pharmacy class of trade.”

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