NASP President Discusses Effect of DIR Fees on Medicare Patients, Specialty Pharmacies


Rebecca Shanahan, JD, chief executive officer of Avella Specialty and president of the National Association of Specialty Pharmacy speaks out on direct and indirect remuneration fees in a 3-part interview.

Direct and indirect remuneration (DIR) fees are significantly impacting specialty pharmacies and seniors enrolled in Medicare Part D. pharmacy benefit managers (PBMs) are charging DIR fees retroactively, surprising pharmacies with bills months after medications have already been dispensed to seniors. This process threatens the ability of specialty pharmacies to continue providing prescription medications to seniors enrolled in Medicare Part D.

If left unchecked, DIR fees could leave vulnerable seniors with fewer choices or without continuation of care from their trusted pharmacy of choice. DIR fees also accelerate the rate at which seniors on Medicare enter the donut hole, where they are responsible for covering all the costs of their prescription medications until they reach a certain threshold.

Review more coverage about DIR fees.

The National Association of Specialty Pharmacy (NASP) has spoken out numerous times about DIR fees on behalf of more than 100 corporate members and 1,200 individuals.

In the first of a 3-part interview with Specialty Pharmacy Times, Rebecca Shanahan, JD, chief executive officer of Avella Specialty and president of NASP, discussed how DIR fees can affect seniors enrolled in Medicare Part D and the specialty pharmacies that serve the unique needs of their patients.

SPT: What is the history of DIR fees?

Shanahan: DIR fees were created as a way to help CMS understand what the Medicare Part D program was paying for medications. The intent was to capture drug rebates that couldn’t be accounted for at the point of sale and therefore were not included in the negotiated price when the claim was adjudicated at the pharmacy counter, but did serve to decrease the cost of drugs to the plan sponsor.

One area where CMS wanted to measure DIR was in rebates. PBMs were created to serve as the “middlemen,” contracting with drug manufacturers to negotiate to best price for drugs based upon placement in the formulary. PBMs all have formularies that have multiple tiers of co-payment costs based on how PBMs want to encourage seniors to use medications. There are discounts associated with where the drug or the manufacturer gets placed on the formulary and what the volume of the utilization of that drug is by plan beneficiaries.

The second component of the DIR fees are administrative fees for managing the network — or network participation fees, where a pharmacy agrees to pay a fee in order to become associated with the PBM network.

A third component is performance-based DIR fees, which big PBMs are charging both specialty pharmacies and retail pharmacies. Big PBMs have constructed a system to award or penalize specialty pharmacies based upon better or worse performance, but specialty pharmacies are being charged DIR fees long after the point of sale and based upon metrics that don't apply to specialty pharmacy. Unfortunately, the way in which DIR fees are charged has a disproportionately negative impact on sick seniors who rely on specialty biologics, as well as the specialty pharmacies that serve that unique patient population.

SPT: How have DIR fees affected seniors enrolled in Medicare?

Shanahan: DIR fees are inflating prescription drug costs for the sickest, most vulnerable seniors — the very patients the Medicare Part D program was designed to protect. DIR fees also threaten the specialty pharmacies that serve the unique needs of patients living with complex, life-altering, and often life-threatening diseases.

A recent JAMA paper showed that the structure of the Medicare Part D benefit design, rebates and remunerations — including DIR fees – actually increase patients’ out of pocket costs. In fact, Dr Peter Bach – director of Memorial Sloan Kettering Cancer Center’s Center for Health Policy and Outcomes, and a co-author of the JAMA paper – calls the current Medicare system “absolutely devastating for people on high-cost specialty drugs.”

Unfortunately, seniors treated by specialty pharmacies are disproportionately impacted by DIR fees. The average monthly prescription drug cost for a specialty biologic totals somewhere between $2,500 and $3,500. In some cases, for some drugs—usually orphan or oncology drugs— prescription medication costs can total upwards of $60,000 to $100,000 a year. This can be devastating for sick seniors across America, as they have an obligation to pay a portion of the cost of the drugs they need, up to a total of about $5,000 before relief is provided through Medicare Part D.

So ultimately, DIR fees force sick and vulnerable seniors to pay more up front than what the drugs cost for Medicare, which is in absolute contravention to what the Medicare drug program intended to do. Keeping the point-of-sale negotiated drug prices as low as possible helps seniors choose between one drug versus another based on the understanding of the actual out-of-pocket cost to them, in addition to the Medicare program. But big PBMs are using DIR fees to keep a higher percentage of the discounts in their own pockets, while sharing less with the federal reinsurance program.

SPT: How have DIR fees affected specialty pharmacies?

Shanahan: DIR fees apply to performance metrics for cholesterol, diabetes and hypertension management. For specialty pharmacy, that's like comparing apples to oranges, because we rarely dispense drugs for those common diseases.

For example, Avella treated 14,000 seniors enrolled in Medicare Part D last year. Just 200 of those patients had 1 of the 3 conditions that PBMs score (cholesterol, diabetes and hypertension). Nonetheless, those 200 patients cost Avella millions of dollars in DIR fees, because we were penalized on “performance clawbacks” ranging from 3% to 5% of the total drug costs of all the drugs we dispense for all our patients enrolled in Medicare Part D, not just those who had a poor score on cholesterol, diabetes or hypertension.

That puts specialty pharmacies underwater by dispensing the drug, meaning we have a negative margin. And what’s worse is that we often don’t know that until 3 to 6 months after we've dispensed the drug. That negatively impacts specialty pharmacy, and we simply cannot continue dispensing drugs to seniors if we have to take a loss on each patient due to opaque DIR fees.

Another thing to keep in mind is that these big PBMs also own their own specialty pharmacies. NASP believes that increased transparency of PBM operations should mandate that the quality metrics for which we are advocating be applied to all specialty pharmacies -- independent or not. This “report card” could be used by CMS, plan sponsors, and seniors alike to select pharmacies that excel in the areas of quality, cost effectiveness, and patient satisfaction -- the foundational principles on which the Medicare Part D program was built.

SPT: What actions can specialty pharmacies take against PBMs?

Shanahan: NASP is taking actionable steps right now, speaking with legislators and regulators on a constant basis. Even though the way DIR fees are calculated is opaque and unclear, big PBMs are increasingly applying them at accelerating levels. So there has to be a level of urgency about this.

PBMs claim they're putting the proceeds from DIR fees into managing premiums for seniors. But we don't know whether that's the case or not, because PBMs will not provide clarity to support such claims. If Anthem says they don't understand how Express Scripts is using the fees that they collect, then it's time for us all to find out a little more about what's in the “black box” where PBMs safeguard information to calculate drug prices.

I encourage any specialty pharmacy that hasn't gotten involved with NASP to please do so, particularly at the upcoming annual meeting in September. We want to hear about the challenges facing individual specialty pharmacies, so we can do even more to address them. Now more than ever, it’s critically important to voice our concerns about in a way that’s knowledgeable and responsible, and underscores the real value of specialty pharmacy, so we can continue delivering much-needed care to seniors enrolled in Medicare.

Be sure to check back for parts 2 and 3 of this interview series.

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