News Releases

Study Finds Medicare 'DIR Fee' Legislation Would Save Government Billions

by NCPA | Sep 28, 2017

ALEXANDRIA, Va. (Sept. 28, 2017) Eliminating retroactive pharmacy payment reductions — or post point-of-sale pharmacy "DIR fees" — in Medicare Part D would save the federal government $3.4 billion over 10 years, according to a Wakely Consulting Group study released today by the National Community Pharmacists Association.

"This new Wakely study is vitally important in showing that DIR legislation will actually save taxpayers $3.4 billion over 10 years without subtracting any benefits seniors currently receive," said NCPA CEO B. Douglas Hoey, Pharmacist, MBA. "For pharmacies, banning these after-the-fact fees is the fair way to achieve predictability in the reimbursement for the medications they buy and dispense."

Commissioned by NCPA, the Wakely report evaluates the impact of enacting the Improving Transparency and Accuracy in Medicare Part D Drug Spending Act (H.R. 1038/S. 413), which prohibits retroactive pharmacy payment reductions on "clean claims" (those without any defect, impropriety or fraud) in Medicare Part D.

Among the key findings of the study:

  • The elimination of retroactive pharmacy payment reductions (a portion of DIR, or direct and indirect remuneration), and instead shifting them to equivalent point-of-sale price concessions, would save the federal government $3.4 billion in Part D payments made to plan sponsors between 2018 and 2027.

  • The Centers for Medicare & Medicaid Services would spend less on federal reinsurance and low-income cost-sharing subsidies. The presence of additional discounts would contribute to lower total drug costs at the point-of-sale. This would decrease the federal government subsidy of low-income cost-sharing amounts while keeping low-income patient pay amounts relatively steady.

  • The decrease in total drug cost at point-of-sale would also lower the amount of claim dollars in the catastrophic phase of the Part D benefit, because claims and amounts accumulating toward the true out-of-pocket catastrophic threshold would be lower.

Pharmacy price concessions, or DIR fees, make up a very small amount of overall DIR in Medicare Part D (the majority is comprised of pharmaceutical manufacturer rebates), but they are used by pharmacy benefit managers to shift financial risk to consumers and taxpayers and wreak havoc on community pharmacies that serve beneficiaries. PBMs have erroneously claimed that making any changes to DIR fees will drive up costs, both for the government and beneficiaries. However, the Wakely analysis, which included scenario testing of key assumptions, makes clear that eliminating retroactive pharmacy DIR fees would reduce overall prescription drug costs for the government, and patients would see savings at the pharmacy counter. 1

The current DIR system, while slightly lowering beneficiary premiums, drives up patient costs at the pharmacy. The only winners are PBMs and the rare Part D beneficiary who pays premiums but never fills a prescription. Food and Drug Administration Commissioner Scott Gottlieb recently highlighted this very issue in a Sept. 21 tweet: "Problem is rebates are used to offset premiums, not OOP [out of pocket] drug costs. So those needing drugs effectively subsidize premiums of those who don't."

Eliminating the retroactive fees would also encourage true pay-for-performance arrangements in which pharmacies are rewarded for their value in helping produce better patient outcomes and lowering costs. Many of the "quality-based" pharmacy DIR arrangements that are currently being used are deeply flawed and blur the line between pharmacist performance and reimbursement for ingredient cost.

Further, eliminating retroactive pharmacy fees would in no way impede efforts to address fraud. The language of the legislation prohibits payment reductions only on "clean claims" — or those without defect, impropriety or fraud. In addition, CMS has far-reaching authority to address fraud, waste and abuse.

"This new Wakely study is robust in its scope and thoroughness and points clearly to significant cost savings to the federal government if H.R. 1038/S.413 were passed into law," said Hoey. "We urge Congress to move quickly to schedule hearings and advance this important legislation."

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The National Community Pharmacists Association (NCPA®) represents the interests of America's community pharmacists, including the owners of more than 22,000 independent community pharmacies. Together they represent an $81.5 billion health care marketplace and employ more than 250,000 individuals on a full or part-time basis. To learn more, go to www.ncpanet.org, visit facebook.com/commpharmacy, or follow NCPA on Twitter @Commpharmacy.

1 Wakely Consultants calculated that any minor increase in beneficiary premiums would be largely offset by out-of-pocket savings at the pharmacy counter. In sum, taking into account both lower patient copays or cost-sharing and slightly increased premiums, beneficiaries may see an increase in net costs of 0.15 percent per year or a 1.5 percent increase in net costs over the course of 10 years.