There are many unique challenges to running profitable independent pharmacies. One challenge that can have a negative impact is an independent pharmacy’s dealings with pharmacy benefit managers (PBMs). Unlike larger retail pharmacies, which have a broader inventory of over-the-counter items to lessen the exposure to direct or indirect renumeration (DIR) fees, these costs can be detrimental to smaller pharmacies.

Pharmacy Times described the initial intention of DIR fees as, “ … a way to track the annual amount of drug manufacturer rebates and other price adjustments applied to prescription drug plans impacting the total cost of Medicare Part D medications. The savings from rebates received by the PBM are passed on to the payer, which in this case is CMS.” (1)

However, over time, DIR fees have transitioned into heightened costs for independent pharmacies to participate in PBM/plan networks, adjustments in maximum allowable cost (MAC) and contracted medication reimbursement rates, and even fees for an independent pharmacy’s noncompliance to PBM/plan quality standards. (1)

PBMs and DIR Fees

PBMs have been justifying the use of fees as an avenue to ensuring industry standards are being met and pharmacies are providing their patients with optimal care. But recent reports put out by the Community Oncology Alliance (2) and the Centers for Medicare and Medicaid Services (CMS) (2) have shown that these fees actually threaten the viability of independent and retail pharmacies, resulting in numerous health care professionals and advocacy groups condemning the DIR fee practice.

Because there are no detailed accountings submitted with DIR fee calculations, it is extremely difficult for independent and specialty pharmacies to absorb the impact of lump sum deductions taken many months after the claim has been processed by the pharmacy, which may have been working under the assumption that their business was profitable.

Large Retail Pharmacy vs Independent/Specialty Pharmacy

For larger pharmacies, retail sales serves as a safety net where they can rely on other forms of revenue generated from a wider offering of over-the-counter and retail items. This is where smaller independent pharmacies fall short. For the independent pharmacy, there is a strong reliance on the reimbursement of prescription drugs to stay profitable.

Because their smaller size leaves them little-to-no room for negotiating drug prices, many smaller pharmacies must choose between agreeing to contracts that offer little profit or losing profit from not being able to accommodate a particular insurance plan.

Many of these pharmacies also treat patients with serious illnesses, such as HIV and cancer, who require complex treatments for survival. Because these medications can cost thousands of dollars per month (per patient), the use of retroactive DIR fees can be overwhelming and result in severe negative impacts to patient access to these medications. (2).

This lack of transparency is an accounting nightmare for smaller independent pharmacies. Assessing retroactive fees quite often results in blindsiding smaller pharmacies with substantial debt – when they had been operating under the assumption that their business was profitable.

Medicare Part D

These retroactive DIR fees are burdensome to pharmacies Medicare patients. According to Douglas Hoey, RPh, MBA, and CEO of the National Community Pharmacists Association (NCPA), “These fees distort the accuracy of drug cost information on Medicare Plan Finder – the only publicly available resource accessible to Part D beneficiaries who rely on this information to make critical decisions about their health care.” (2)

Alliances and Advocates: What We Do

AlliantRx members already have an entire team working on their behalf to lower costs. We use the strength of our numbers to better negotiate prices on your behalf, as well as offering member discounts through preferred vendor offers that can help maximize their savings.

In addition to these types of alliances, the NCPA consistently rallies behind legislation that will prohibit retroactive-based DIR claims in the Medicare Part D space – a practice that rapidly puts beneficiaries into the donut hole due to the increased costs associated with these fees (4).

Further, the independent pharmacy industry, along with advocates for independent pharmacy organizations (such as the NCPA), continues to work with CMS and legislative representatives to keep the spotlight on harmful PBM practices, like DIR fees, in an effort to keep costs manageable, and independent and specialty pharmacies profitable.

Be sure to follow this blog for more regulatory and reimbursement intel, tips, insights and bulletins from your partners at AlliantRx.

Sources:

1. http://www.pharmacytimes.com/contributor/blair-thielemier-pharmd/2016/07/the-dirt-on-dir-fees
2. https://www.specialtypharmacytimes.com/news/study-dir-fees-harmful-to-all-except-pbms
3. http://drugtopics.modernmedicine.com/drug-topics/news/new-legislation-aims-prohibit-dir-fees
4. http://www.pharmacytimes.com/news/dir-fees-and-independent-pharmacies-what-is-the-impact