White Paper: PBM DIR Fees Costing Medicare and Beneficiaries: Investigative White Paper on Background, Cost Impact, and Legal Issues

A White Paper by Frier Levitt examines the ongoing practice by Pharmacy Benefit Managers (PBMs) to increase corporate profits through murky “Direct and Indirect Remuneration” fees—commonly known as “DIR Fees”—charged to community oncology practices, as well as retail and specialty pharmacies (Pharmacy Providers).

PBMs must report all discounts given after the drugs are sold to CMS. These are called “Direct and Indirect Remuneration” or “DIR.” PBMs often receive additional discounts from manufacturers after the initial sale of drugs to patients. These include such things as manufacturers’ rebates and co-pay assistance programs. Discounts change the final cost of the drugs and CMS wants to be able to calculate reimbursement on the final, lowest price paid. DIR is a legitimate concept that helps CMS improve transparency in the Medicare Part D program.

DIR Fees artificially inflate the costs paid by Medicare beneficiaries for prescription drugs, pushing them into the Medicare Part D “donut hole” faster, fueling rising drug prices, and ultimately adding to the burden on taxpayers.

CMS estimates that more than 25% of all Part D participants in the “donut hole” will discontinue prescription their drug regimens because of the much higher out-of-pocket costs they face. This disruption of treatment translates into poorer health care and outcomes, costing Medicare even more money in the form of more frequent doctor visits and expensive hospital admissions.

DIR Fees have no legitimate basis in regulation or law. The only purpose they serve is to create additional profit for the PBMs. There is little evidence that retroactive DIR Fees are ever reported to Medicare, which further disguises actual drug costs. CMS is unable to determine the full extent of DIR Fees and their impact on the health care system.

Legislative and regulatory action on DIR Fees is needed by CMS and Congress. PBM imposed DIR Fees have a drastic financial impact on patients, the Medicare Part D program, and Pharmacy Providers. PBMs have exceeded their administrative authority by implementing DIR Fees. Action is needed, both by CMS, under the Trump Administration, and Congress.

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