DIR Fees and Medicare: Are There Savings for the Government?

Advocates on both sides of the ongoing debate surrounding direct and indirect remuneration (DIR) fees continue to argue about the real world impact these fees have across the health care landscape.

The Pharmaceutical Care Management Association (PCMA) recently commissioned Milliman to write report about DIR fees and how they may be beneficial to the federal government.

Review our past coverage of DIR fees.

The PCMA study suggests that the price concessions PBMs negotiate with pharmaceutical manufacturers that are reported as DIR fees stand to save the federal government $48.7 billion in spending on Part D drugs over the next decade, according to a press release.

“Without DIR, Part D premiums and program costs would be much higher,” Mark Merritt, president and CEO of PCMA, said in a press release.

This analysis projected the past, current, and future value of DIR fees on individual prescription drug plan (PDP) stakeholders, including the federal government, Medicare patients, and manufacturers, according to the PCMA.

The investigators found that DIR fees have saved plans money in the past and they estimate that it will result in future savings into 2026 for Medicare Part D, according to the study.

In 2017, the researchers project that DIR fees negotiated by PDPs and PBMs will save $20.4 billion of point-of-sale drug costs, according to the study.

DIR has saved approximately $87.8 billion from the initiation of the program through 2016 and is expected to reach $308.2 billion from 2017 through 2026, according to the PCMA.

The authors also found that PDP DIR will reduce costs to the federal government by $17.2 billion in 2017, an approximately 27% savings compared without price concessions. DIR was found to save the government $75.4 billion between 2006 and 2016 and is estimated to save another $259.6 billion by 2017.

PCMA also reported that PDP DIR has saved beneficiaries 25.1% on their premiums, which equates to $12.4 billion in savings through 2016. Through 2026, DIR is projected to save 33.2% ($48.7 billion) on premiums, according to the study.

In 2017, the authors stated that negotiated manufacturer rebates are projected to account for a majority of the total DIR, while pharmacy DIR accounts for a small portion of the total costs.

However, the impact on Part D program costs may be larger in that it typically encourages pharmacies to meet adhere to pay-for-performance standards, according to the report.

Although the impact of pharmacy DIR on generic dispensing is unknown, a 1% increase would have saved the Part D program and its beneficiaries an estimated $15.3 billion since the program began, the authors wrote. Over the next decade, the savings increase to $68.9 billion for a 1% improvement in generic dispensing rate, according to the study.

“Price concessions reflected as DIR have resulted in overall savings for Medicare Part D program beneficiaries and the federal government historically, and we expect this savings to continue going forward,” the report concluded.

On the other side of the debate, the National Community Pharmacists Association (NCPA) points out several potential pitfalls of the study and alleges that it may be misleading.

In a statement, B. Douglas Hoey, CEO of NCPA, said that the PCMA report does not account for savings the federal government would experience by prohibiting retroactive DIR fees. This action would lower Medicare cost-sharing for lower-income patients and spending on federal reinsurance. The NCPA has previously spoken out about the harm DIR fees place on independent pharmacies.

Additionally, the NCPA positioned that the reported did not identify the potential patient benefits in eliminating retroactive DIR, according to the press release. Hoey wrote that this would lower out-of-pocket costs for patients; however, the study reported that savings for patients may come in the form of premium decreases.

The NCPA also believes that applying DIR to point-of-sale transactions as opposed to retroactive fees would save money to the government and taxpayers, according to the release.

"This is just another in a long line of studies the pharmacy benefit managers trade group has cobbled together to try to validate their practice of charging pharmacies unpredictable after-the-transaction DIR fees," Hoey said. "Those fees not only hinder independent pharmacies' ability to know whether or not they'll break-even on a transaction, but they also can push Medicare patients more quickly into the Medicare donut hole. This also pushes patients into the catastrophic phase of coverage where the government takes on the lion's share of the costs."