Do DIR Fees Threaten the Viability of Independent Pharmacies?

Independent pharmacies face unique challenges that retail pharmacies may not face when dealing with pharmacy benefit managers (PBMs). While both experience direct and indirect remuneration (DIR) fees, these costs may cause smaller pharmacies to close their doors.

DIR fees involve PBMs charging pharmacies a fee to ensure they are providing optimal care for patients, and meet certain benchmarks.

“For pharmacists, it’s very difficult in terms of any transparency, and how they’re being calculated, even though they’re really being extracted on each claim,” Susan Pilch, vice president of Policy and Regulatory Affairs for the National Community Pharmacists Association (NCPA) said in an interview with Specialty Pharmacy Times. “We have no detailed accounting on a claim-by-claim basis on how it’s being calculated. These fees are being withheld from us in a lump sum months down the road. It makes it very difficult for us in terms of business perspective.”

This practice can quickly make a pharmacy unprofitable. Steve Giroux, former NCPA president and independent pharmacist in West New York, told SPT about the struggles of retroactive DIR fees.

“When it’s not done in real time, we often don’t know for months or almost a year that we are unprofitable on a particular transaction,” Giroux said. “The unfairness of that mechanism has gotten the attention of CMS, and I think we are on the verge of eliminating them entirely. Certainty, gaining a lot more transparency.”

Currently, DIR fees are often not itemized, and lack transparency. Since they come unexpectedly, pharmacies may believe that they are operating profitably day-to-day, only to later realize that they have gained substantial debt because of the retroactive fees.

Independent pharmacies also typically receive very low reimbursement rates. If additional fees are taken, they may have to close their doors, and leave their patients without access to medication.

“We’re being forced to fill prescriptions under our cost, and taking money out of my pocket to serve my patients. The dispensing fees that are in these contracts are next to nothing, which comes nowhere near my actual cost per transaction to do business,” Giroux told SPT. “If they take any DIR fees, I’m below my cost of the product. It impacts community pharmacies very dramatically.”

While retail pharmacies can fall back on revenue from selling front end items, independent pharmacies typically cannot. They rely heavily on prescription drug reimbursement to ensure they remain profitable.

"This practice will ultimately disrupt the community pharmacy infrastructure, potentially eliminating smaller pharmacies that often provide a disproportionate share of extra services, particularly to the elderly and Medicaid recipients who often need extra assistance and benefit greatly from the services of a face-to-face healthcare professional pharmacist available in underserved communities," Giroux said. "These services have been proven to lower overall healthcare costs by improving outcomes through better compliance and disease management, and would be lost."

Low reimbursement rates plus DIR fees may leave independent pharmacies with no choice but to downsize or shut down their businesses. Due to the small size of most independent pharmacies, they have relatively no leverage to negotiate — they can either agree to the contract or lose even more revenue from not serving a particular plan.

“We are constrained by our lack of negotiating power,” Pilch said. “We don’t have any particular insights into the chains, but we assume that they have economies of scale, which they are able to use to push back on the PBMs.”

Independent pharmacies and advocacy organizations have worked for many years to expose PBM activities that harm patients and pharmacies, such as DIR fees.

These fees can send Medicare Part D beneficiaries into the donut hole quicker due to increased costs. The patients then have to pay for the drugs out-of-pocket until they enter catastrophic coverage, where Medicare pays for 80% of the drugs. This increases costs for the patients, the government, and ultimately, taxpayers.

“These DIR fees are being used by PBMs and plans to manipulate the system for their own self-interest,” Pilch said. “The only party that benefits from these retroactive fees are the plans and the PBMs. I think consumers, pharmacies, and the government are negatively impacted.”

Without the service of independent pharmacies, retail and mail-order pharmacies—which are sometimes operated by PBMs— gain a significant portion of patients.

It is important that advocacy groups, such as NCPA, work with pharmacies and the federal government to increase transparency and regulate PBMs for the benefit of the patient.

“NCPA has been a strong supporter of legislation that was introduced last year, that is slated to be reintroduced very soon, that would prohibit retroactive-based DIR claims in the Part D space. We think that would go a long way in terms of solving these problems, both for the pharmacy and the Part D program,” Pilch told SPT. “The more these types of fees are incorporated into the negotiated price, it provides clarity to pharmacies, the Part D program, and to consumers as well, since that is what drives plan finder data. That legislation would make things more manageable.”