FMI, NGA, NACDS back proposed rule clamping down on DIR fees

FMI-The Food Industry Association (FMI), the National Grocers Association (NGA) and the National Association of Chain Drug Stores (NACDS) are hailing a proposed rule by the U.S. Centers for Medicare & Medicaid Services (CMS) that would rein in direct and indirect remuneration (DIR) fees and help lower costs for consumers and pharmacies.

CMS is slated to publish the rule proposal, titled “Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs,” on Jan. 12 in the Federal Register. The rule was released late last week.

NACDS said the rule would “have the practical effect” of stemming cost hikes in seniors’ out-of-pocket drug costs that result from a current regulatory loophole that also impacts retail pharmacies via “unpredictable and often below-cost payments” from payers to pharmacies for the prescriptions they fill. FMI and NGA noted that the rule change would clamp down on “claw backs” — DIR fees — charged to pharmacies often well after a medication has been dispensed.

“DIR fees have needlessly inflated seniors’ out-of-pocket drug costs and have been a bane of pharmacies’ existence — and a threat to their existence — for more than a decade. NACDS welcomes the Biden administration’s action, which is critical for retail pharmacies of all formats and sizes,” NACDS President and CEO Steve Anderson said in a statement. “We will continue to engage and we will comment formally to help make the most of this moment. We also look forward to working with the administration, with Congress and with other key stakeholders for the establishment of consistent, relevant and workable pharmacy quality measures that are essential to the success of true DIR fee reform.”

Related:FMI helps launch Coalition for PBM Reform

Independent grocers have especially felt the impact of DIR fees, with many forced to close their pharmacy operations.

DIR fees refer to post-point-of-sale compensation received by pharmacy benefit managers (PBMs) and Medicare Part D plan sponsors for prescription drugs. Used in the calculation of final Medicare payments to Part D plans, these fees primarily are rebates paid by drug manufacturers but also include concessions paid by pharmacies, such as pay-for-performance network fees and reimbursement reconciliations. As a result, DIR fees affect the final cost of a drug for payers and the price paid to pharmacies for a drug. 

A pillar of retail pharmacy industry efforts to crack down on DIR fees has been a lack of transparency for these costs and the fact that they’re often charged retroactively, after the point of sale for drugs dispensed to seniors under Part D. Pharmacies of all sizes have felt the financial squeeze, particularly small operators. 

Related:FMI, NGA join pharmacy coalition backing DIR fee reform

Citing federal data, FMI and NGA reported that pharmacy DIR fees have soared 91,500% from 2010 to 2019. What’s more, FMI pointed out, DIR fees are “rarely used as intended” to reimburse or otherwise reduce a drug’s cost because they’re “clawed back” often long after the medicine was dispensed, meaning that patients pay more up front.

“Despite their essential role in serving communities, particularly during the last two years amid the pandemic, supermarket pharmacies are struggling to stay in business due to the anticompetitive practices of PBMs, such as the collection of DIR fees. As a result, some FMI members have been forced to close or sell their pharmacies while others are considering having to do so in the future, leading to significantly reduced access for consumers,” according to FMI President and CEO Leslie Sarasin. “This proposed rule would generate savings and increase price transparency for pharmacies and their customers alike by halting predatory practices among PBMs.”

Because of DIR fees’ retroactive nature, independent grocers have had no way to budget for them, and many have been compelled to shut their pharmacy operations, NGA noted.

“Pharmacy price concessions have been out of control for years,” commented Robert Yeakel, NGA’s senior director of government relations. “NGA looks forward to working with the Biden administration, our champions in Congress, and other partners to make sure that the final rule protects both seniors and pharmacies from onerous PBM practices.”

FMI noted that DIR fees are 'rarely used as intended' to reduce a drug’s cost for patients or reimburse it to pharmacies.

CMS said it has proposed a policy that would require Part D plans to apply all price concessions they receive from network pharmacies at the POS, “so that the beneficiary can also share in the savings.” The agency aims to redefine the negotiated price — i.e. the price reported to CMS at the POS — as the baseline payment to a pharmacy, effective Jan. 1, 2023. According to CMS, the new policy would reduce beneficiary out-of-pocket costs and improve price transparency and market competition in the Part D program.

“NGA members operate more than 3,000 pharmacies within their stores. Independent grocers have been at the heart of their communities throughout the pandemic, providing food, medications, and other services including COVID-19 vaccinations,” stated NGA President and CEO Greg Ferrara. “The proposal by CMS will help keep these essential businesses open and helping the folks who need it most.”

NACDS said the reforms proposed by CMS would cut seniors’ drug costs by an estimated $21.3 billion over 10 years. The association said CMS estimated that DIR fees swelled more than 107,400% between 2010 and 2020.

This past summer, NACDS, FMI and NGA voiced their support for the Pharmacy DIR Reform to Reduce Senior Drug Costs Act (S. 1909 / H.R. 3554), a federal bill designed to tighten regulation of DIR fees charged by PBMs.

“NACDS expresses deep appreciation to the sponsors of the Pharmacy DIR Reform to Reduce Senior Drug Costs Act (S. 1909/H.R. 3554) in this Congress, and to those who have helped lead the charge for DIR fee reform in prior Congresses,” Anderson added. “We look forward to their continued leadership and engagement throughout the regulatory process and to address any and all remaining legislative needs.”