Lawyer Shares Outlook on DIR Fees and Reimbursement for Community Oncology Pharmacies in 2024

Pharmacy Times interviewed Jonathan Levitt, Esq, co-founding partner at Frier Levitt Attorneys at Law, on his presentation at the 2024 Community Oncology Alliance (COA) Community Oncology Conference in Orlando, Florida titled: Navigating DIR Fees & Reimbursements: Insights & Analysis on Community Pharmacies & the Pitfalls of PBMs. Levitt addresses challenges related to ongoing issues with DIR (direct and indirect remuneration) fees even after the law was changed eliminating these fees in January 2024.

Pharmacy Times:What is the current state of post-DIR challenges relating to financial transparency for community oncology pharmacies?

Jonathan Levitt, Esq: The government changed the law on DIR fees as of January 1, 2024, so technically, DIR fees are not around anymore. As of the beginning of this year, however, Caremark charges DIR fees, or they recoup the DIR fees, up to 6 months after the point of sale. So unfortunately, right now, everyone here at the COA convention, they're still paying collectively about 100 million dollars a quarter in DIR fees, and that will last probably for another, I would say, until maybe the third quarter of 2024.

You can really combine that negative with declining reimbursement rates. So pharmacy benefit managers (PBMs) made a tremendous amount of money from the DIR fees from 2016 to 2023. And it really kind of accelerated the last few years. So, you'd measure the profitability of DIR fees to PBMs in the billions and tens of billions. And so that's a tremendous amount of profitability. Obviously, the big 3 PBMs are publicly traded companies, and they have to deliver shareholder value. And how do they do that in the drug space? If, as of January 2024, they can no longer to say steal DIR fee dollars from oncology practices, how do they try to maintain the same level of profitability in Medicare Part D, which is a capitated model? They have to plummet reimbursement rates. So, we predicted in 2023, that in 2024, reimbursement rates would decline precipitously, and they did. So, the biggest challenge right now for oncology practices is they literally buy a drug for $1, and 8 out of 10 times they're being reimbursed less than $1, just on a cost vs goods sold accounting basis. So, no overhead, not for paying for doctors, pharmacists, and rent. So, it's a challenging reimbursement rate environment.

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Pharmacy Times: What has been the financial impact on community oncology pharmacies of some of these reimbursement challenges, and how have things changed over the past year compared to prior years?

Levitt: In beginning in 2024, when DIR fees went away, for the PBMs, the reimbursement rates plummeted. So, what we need to do is compare the net reimbursement rate in a prior year to the net reimbursement today [sic]. So, it used to be that PBMs would reimburse more at the point of sale, and they'd take the DIR fee, and that math comes out to a net reimbursement rate. When we compare the net reimbursement rate with DIR fees in prior years to the current time period, we see that the net rate has declined. And so, it's probably the number one talking point here when you walk around is that practices oftentimes are underwater on reimbursement rates for Medicare Part D drugs, which I should add absolutely violates federal law. There is this federal Any Willing Provider law, and there's also a statute, there's regulations, and there's CMS guidance, and CMS has said to PBMs in guidance that reimbursing for specialty drugs below water violates the law, but nevertheless, PBMs are doing it because they're getting away with it. A lot of practices don't have enough money to really fight it, and CMS is not doing anything, unfortunately, to help at all.

Pharmacy Times: What is the administrative burden of DIR challenges, and are there opportunities for AI/health tech to alleviate some of this workload, or are there regulatory challenges related to health tech stepping in?

Levitt: So, there are tremendous administrative challenges to understanding DIR by PBMs. First of all, PBM don't share the metrics they use. So, I couldn't be here on camera talking about—or anywhere—talking about Caremark’s MPR [medication possession ratio]. Because Caremark’s leaders told me that they would sue me personally if I told anybody. So, we uncovered that they were doing MPR wrong. They just don't understand oncology drugs and understand oral oncolytics. So, because Caremark didn't want to pay a recent arbitration award, we were able to make the panel's decision in a case called [Caremark, LLC v. N.Y. Cancer & Blood Specialists] public, and we're able to reveal publicly about medication possession ratio. So, when you asked me the challenges, imagine we have practices that paid $40 million in DIR fees. We have a specialty pharmacy that paid 100 million, and Caremark says they give essentially a report card that tells you adherence, but they don't tell you how they arrived at that, they don't tell you their methodology, and they don't tell you which patients they think were not adherent. So administratively a challenge is no practice here other than 14 practices that have a Caremark DIR fee arbitration has any idea how Caremark actually judges there MPR. Or in other words, which patients were not adherent in the eyes of Caremark. So, one administrative challenge is a lack of transparency. But there are other administrative challenges.

[For example,] Caremark doesn't tell you how much they took from each drug. So, let's say you're owed a million dollars in a quarter or a trimester from Caremark, and you owed $300,000 in DIR fees. Caremark writes you a remittance advice, and they will send you a check with a detailed breakdown. And to recoup the DIR, they block 300 grand. So, you have no idea which claims that attaches to. So for administrative burden, you don't know how they calculate your performance, you don't know which patients they're taking the money for. And so, for practices to figure out a profit and loss on, for example, Caremark’s business, it's incredibly difficult because DIR fees come 6 months later, and you don't know which drugs they are taking the money back for. So, the administrative challenges are substantial.

Pharmacy Times: What is the current state of legislative prospects/progress in terms of reining in PBMs and the impact of DIR?

Levitt: The United States Senate Finance Committee, led by Senator Wyden and Minority Crapo—so, there's a democrat and republican, and they were bipartisan, and they had their hearts and souls into PBM reform, and they have health care lawyers who work for the senators. And these lawyers are so smart, they got so deep into understanding the PBM model, from Medicare Part D bids to reimbursement rates to the impact on all the folks here at COA. And they drafted legislation that was bipartisan that would have would have helped. It did a couple of couple things. It made it clear that this Any Willing Provider law applies to PBMs as opposed to merely applying to prescription drug plans, like Aetna, Cigna, SilverScript. It would apply actually directly to the PBMs. So that legislation was drafted. We had a hand in trying to formulate those drafts, and the laws were passed, but the PBM part of the legislation did not make it through. So, I'm told that people who know Washington better than me, including Jeff Mortier [sic]. And he's pretty confident that that legislation gets passed by the end of the year. But as of this moment, I can tell you, Senate Finance was working on this legislation for a year, and I mean, smart, hardworking people for a year, and it hasn't been passed yet.

Pharmacy Times: What is your outlook for 2024 in terms of DIR challenges and reimbursement issues for community oncology pharmacies?

Levitt: So, we have a number of arbitrations against PBMs with respect to DIR fees, and in those arbitrations, we are proving that Caremark in particular was reimbursing pharmacies in Medicare Part D contingent upon their performance, and performance was judged by Caremark based on patient adherence. And Caremark would judge patient adherence based on MPR. And Caremark just simply got it wrong. So, in terms of 2024, 2025, and early 2026, we have more than a couple dozen arbitration hearings against Caremark and others to challenge this DIR recruitment, and we feel very strongly about our likelihood of success. So, for those who had claims big enough to bring an arbitration, we feel very comfortable about this.

But I feel bad that practices that had, let's say, half a million dollars in DIR fees, when you file an arbitration, you have to pay the arbitrators, there are lawyers that get paid hourly, and Caremark has required a panel of 3. So, you have to pay half of 3 lawyers, and you have to pay filing fees and expert fees. It gets very expensive. So, the barrier to entry is pretty high in some of these cases, because they get expensive.