“DIR” Fees and “clawbacks” are major buzzwords among independent pharmacies and other providers, and even among legislators, as the rising cost of prescription drugs is an ever-present topic in politics. Although Frier Levitt has discussed DIR Fees on our website and in our blog, as when we reported on a Proposed Rule from the Centers for Medicare and Medicaid Services (CMS) affecting DIR Fees, in this article, we want to get back to basics and explain what DIR Fees are, why they are allowed, and what providers can do to fight them.
What Are DIR Fees?
DIR Fees are fees charged specifically under Medicare Part D (Part D) to pharmacies and other providers of pharmacy services participating in Part D networks. “DIR” stands for “Direct and Indirect Remuneration,” and describes any kind of remuneration Part D Plan Sponsors (PDPs) or their Pharmacy Benefit Managers (PBMs) may receive from any source that offsets the PDP’s costs. “DIR Fees” is a colloquial term generally used by the pharmacy industry that has been adopted by most stakeholders, and even legislators, to describe a particular kind of DIR that CMS typically refers to as “pharmacy price concessions.” These are fees that PBMs charge providers participating in Part D that decrease PDP costs. PBMs posit that DIR Fees incentivize improved pharmacy performance. However, DIR Fees are often charged to providers in these “Performance Networks” regardless of the provider’s performance and, even where performance is actually measured, it is often done so in a flawed, opaque, and unfair manner.
What is the Problem with Performance Networks?
Performance networks on the surface seem like a good idea. After all, don’t providers want to distinguish themselves by demonstrating that they perform well? Don’t PDPs have the right ensure that participating providers are providing value? These are fair points, and most providers would accept Performance Networks and DIR Fees if they utilized fair quality measures and focused on improving their own transparency and accuracy. Unfortunately, PBMs do the opposite: they use unfair metrics, measure performance in ways that shut the door on the provider’s opportunity to affect their scores in any way, and do all this without sharing sufficient data with the provider that would aid the provider in improving patient outcomes.
The typical Performance Network operates in this manner – a provider is told it will be subject to certain quality measures, or “metrics,” usually focused on adherence to certain maintenance medications used to treat diabetes, cholesterol and blood pressure, for example. Other metrics sometimes include a “generic dispense rate” (GDR), which is a ratio of the number of generic claims as compared to the pharmacy’s total claims. Some specialty pharmacies may or may not be subject to these retail metrics, depending on the network, and a PBM may measure specialty adherence, though those measurements are often inapplicable or do not represent the quality of service and care offered to patients. Depending on the PBM or PDP, a DIR Fee may be assessed on every claim at the point of sale, after which the pharmacy may “earn back” a portion of the fee based on performance, or the PBM may simply assess the fee after it has scored the provider for performance. This latter method can be especially harmful to providers, as it requires them to accrue funds for several months to account for the coming fees, the total amount of which they cannot know. This can result in a provider being unable to pay its bills as fees become due and the PBM recoups them, or in a lack of liquidity for the provider as it must accrue sufficient funds to pay the fees in the future, even though it has no way of knowing how much the fees will total.
While the manner in which DIR Fees are collected is problematic, the metrics used by PDPs and PBMs are often unfair. For example, GDR is an unfair metric because providers have little control over whether they dispense a generic. Any pharmacist, for example, must dispense a brand drug if the prescription includes the instruction “dispense as written.” Moreover, some PBMs require a particular brand be dispensed instead of the generic as on formulary, but do not exempt these drugs from the GDR requirement. For specialty pharmacies, GDR is even more inapplicable, as many specialty drugs have no generic equivalent. Even though PDPs and PBMs could exclude drugs with no generic equivalent from the GDR metric, they simply do not, resulting in a low GDR score for any specialty pharmacy and, therefore, making the DIR Fee mandatory, rather than a fair or more reasonable metric.
Specialty pharmacies are also unfairly measured in adherence for drugs like statins and diabetes medications, even though few specialty pharmacies actually dispense these drugs. Regardless, PBMs will often arbitrarily assign a performance score to the pharmacy or will otherwise penalize the pharmacy for not dispensing such drugs.
Notwithstanding the metrics, some portion of DIR Fees are often simply mandatory. That is, in some DIR Programs, some DIR Fees must be paid regardless of performance, and the provider simply has no opportunity to “earn” those fees back.
How Is This Practice Allowed?
This practice has been allowed in Part D under Part D Rules, and CMS has not reviewed performance metrics and programs to decide whether they are fair. Although a recent rule requires Plans and PBMs to report the metrics they are using, nothing in the text of that rule expressly requires those metrics to meet a particular standard. Additionally, a recent rule change will go into effect in 2024 that will make DIR Fees less profitable for PDPs and, therefore, DIR Fees in their current form will likely disappear. Unfortunately, they will remain in effect, and likely increase, in 2023 and, to the extent they persist, CMS has made no provision to ensure that any metrics used will be fair.
What Can We Do To Fight DIR Fees?
There are strategies to fight DIR Fees, and Frier Levitt is at the forefront of disputes with PDPs and PBMs over DIR Fees on behalf of providers. The proper claim raised in the proper manner can be successful, and providers can make significant recoveries under the right circumstances. Additionally, providers should engage with their legislators in Congress to let them know how they are struggling with DIR Fees, and ask for legislation that eliminates DIR Fees and requires reasonable reimbursement for providers participating in Part D.
Contact An Experienced DIR Fees Attorney
Frier Levitt’s attorneys are pharmacy specialists and assist pharmacies and other providers not only in DIR Fee disputes, but also in responding to PBM and Plan audits, contracting, network access, and transactions. Contact a Frier Levitt attorney to learn more.
