Despite strong support from leading pharmacy associations, patient advocacy groups, senior citizen groups, and members of the U.S. Congress, in May 2019 the U.S. Department of Health and Human Services (HHS) issued a final drug pricing rule for Medicare and Medicaid that failed to address the serious issue of pharmacy direct and indirect remuneration (DIR) fees.

Both the National Community Pharmacists Association (NCPA) and the National Association of Chain Drug Stores (NACDS), which together represent more than 62,000 pharmacies nationwide, had made DIR fee reform their top regulatory priority for 2019. In a joint statement, the two agencies expressed disappointment and frustration over HHS’s action, and noted that “DIR fees are being misused by payers to claw back reimbursement to pharmacies for the prescription drugs that they provide to Medicare beneficiaries. For example, payers impose penalties for pharmacies’ alleged failure to achieve certain benchmarks — many of which are vague, undefined, inconsistent, unachievable, or outside the control of pharmacies.”

The concept of DIR goes back to the 2006, when Medicare Part D was initially implemented. DIR fees were included in the original Medicare Part D legislation as a way to allow CMS (Centers for Medicare & Medicaid Services) to account for rebates that manufacturers paid to plan sponsors and pharmacy benefit managers (PBMs). This additional compensation is generally paid after the point of sale, and has the effect of changing the final cost of the drug for the payer, or the price paid to the pharmacy for the drug. This compensation includes manufacturer rebates and concessions paid by pharmacies, which CMS uses to calculate final Medicare payments to Part D plans.

However, the fees have become highly contentious as PBMs increasingly impose retroactive assessments on pharmacies — a practice referred to as “clawbacks” — long after the patient has received the medication in question. “Assessed weeks or months after Part D beneficiaries’ prescriptions are filled,” the American Pharmacists Association noted in its analysis of the proposed rule, “the patient — who has already paid the higher price at the counter — saves nothing.”  

Instead, the impact is felt by pharmacies. In 2017, pharmacy DIR fees amounted to an estimated $4 billion, or roughly 1.5 percent of the retail pharmacy industry’s prescription revenues. The amount of fees imposed, along with the unpredictable timing and arbitrary nature of assessments, prevents pharmacies from adequately closing their books, or from having a true understanding of revenues. Instead, pharmacies operate under the constant threat of retroactive DIR fee assessments. 

The pharmacy industry had reason to believe though, that relief was finally in sight. 

First, in November 2018, HHS issued a preliminary regulatory change to Medicare Part D pricing structures that included a provision to amend the definition of “negotiated price” to clarify that prices charged to Part D enrollees at the point of sale are inclusive of all pharmacy price concessions.

Then, in his April 2019 remarks to the NCPA, HHS Secretary Alex Azar stated: “We know the burdensome nature of the DIR system can be a real challenge for community pharmacies….. That’s why, in this year’s Part D draft rule, we proposed requiring that DIR fees be accounted for at the point of sale, so that pharmacies aren’t required to pay back retroactive fees long after dispensing the patient medication needs.”

But hopes of achieving meaningful reform were quashed in May, when HHS released its final drug pricing rule, and included no DIR fee reform.

It appears then, at least for the foreseeable future, that pharmacies will continue to operate under the status quo, with the threat of clawbacks hanging like a dark cloud.

Despite this setback, leaders of the DIR fee reform effort have vowed to fight on. “Pharmacies are in a tenuous situation,” the joint NCPA/NACDS statement notes, “and our organizations are exploring all options for accomplishing desperately needed reforms to pharmacy DIR.” Among other things, pharmacy groups have given their support to federal legislation S.988/H.R. 803, the “Improving Transparency and Accuracy in Medicare Part D Spending Act,” which among things, would prohibit retroactive pharmacy DIR
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