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The Dose

More Misleading Information From the PBM Lobby

by Michael Rule | Apr 03, 2017

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As evidence continues to mount that retroactive "DIR" fees can have an adverse impact on taxpayers and beneficiaries of Medicare prescription drug plans, the pharmacy benefit manager (PBM) lobby is grasping at straws to prevent the enactment of the Improving Transparency and Accuracy in Medicare Part D Drug Spending Act, (S. 413/H.R. 1038). This bipartisan and common sense approach would bring some degree of transparency on how "DIR" fees are calculated and assessed.

Their latest effort relies on a mix of misleading claims and deflection in an effort to preserve the status quo. Let's examine their claims.

Claim: "DIR" fees are pharmacy price concessions in exchange for recognition by a plan as a preferred pharmacy.

Reality: While "DIRs" are recognized as pharmacy price concessions in the eyes of Medicare, they are not necessarily linked to the pharmacy's ability to participate as a preferred provider. Some plans assess "DIR" fees on pharmacies who simply participate in the base plan as a non-preferred network pharmacy.

Claim: Pharmacies have significant clout in contract negotiations and are represented by powerful pharmacy service administrative organizations (PSAOs) that negotiate with PBMs and accept contractual terms on behalf of pharmacies.

Reality: While it is true that many pharmacies are represented by PSAOs, the notion that pharmacies or PSAOs have any real negotiating power with the PBM is preposterous. While PSAO's can accept contracts on behalf of pharmacies, due to antitrust limitations, they cannot reject contracts on behalf of pharmacies. If the PSAO declines a contract, the PBM is free to directly contract with pharmacies. Considering three PBMs account for roughly 80% of patients covered by a prescription drug plan, whether the pharmacy represents itself or is represented by a PSAO, generally the contract offered is on take it or leave it terms. As a recent report from the American Consumer Institute entitled Pharmacy Benefit Managers: Market Power and Lack of Transparency noted such market concentration "has allowed PBMs to become price-makers, and pharmacies as price-takers."

Claim: "Plans use DIR to encourage pharmacies to dispense generics, help patients stay adherent to medications, and otherwise improve their services." And the reason pharmacies object to DIR is they don't want to live up to their contractual obligations.

Reality: Nothing in the legislation prevents plans from offering performance-based contracts and rewarding pharmacies for achieving superior performance. The legislation just requires that fees be accounted for at point of sale, not calculated and assessed weeks or months later. If a pharmacy's net reimbursement for a medication is going to be $5.00, they should be informed of that at point of sale instead of being informed that their net reimbursement will be $10.00 only to have $5.00 of that clawed back later.

Moreover, CMS has stated that they believe most DIR price concessions can be calculated or reasonably approximated at point of sale. So the question becomes why does the PBM lobby remain so adamant that these fees continue to be assessed retroactively?

Claim: DIR fees reduce costs for patients and taxpayers.

Reality: The very report cited by the PBMs when read in toto questions the cost saving nature of DIR rather than confirming it. The report notes that DIR artificially inflates the list price of medications which can lead to higher beneficiary cost-sharing levels. Further, it is the list price that determines the beneficiary's progression through the Medicare prescription drug program. Artificially high list prices can prematurely push beneficiaries into and through the coverage gap, or "donut hole", where the beneficiary and Medicare pay a bulk of the costs.

Claim: There are more pharmacies in the United States than "Taco Bells, Kentucky Fried Chicken, McDonald's, Burger Kings, Pizza Huts, Wendy's, Domino's Pizzas and Dunkin Donuts locations combined." PBMs leverage this competition and create cost savings through limited and preferred pharmacy networks.

Reality: A 2014 analysis by Dr. David Eisenstadt found that opening Medicare preferred pharmacy networks to any willing pharmacy could leave drug prices unchanged suggesting that limited preferred networks are not necessarily the cost savers the PBM lobby suggests they are.

Moreover, it is of no consequence if there are more pharmacies than ten cherry picked restaurant chains (the PBM lobby neglects to include other national and regional chains in their count). However, what is consequential is that the food industry follows a market based model that puts the consumer in charge of the decision making process rather than an opaque middleman. Consumers have unfettered access to the eatery of their choice which has kept price inflation in the industry in check. Unfortunately, the same cannot be said about the prescription drug benefit system.


While the PBMs continue to tout arguments that their "tools," including DIR, save money, the Medicare analysis and others call this into question. It is time for Congress to pass legislation such as Improving Transparency and Accuracy in Medicare Part D Drug Spending Act (S. 413/H.R. 1038)and the Prescription Drug Price Transparency Act (H.R. 1316) to bring greater clarity and transparency to prescription drug pricing.