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ASHP Issue Brief: Direct and Indirect Remuneration Fees

March 23, 2017


Direct and indirect remuneration fees (DIR Fees) are a growing concern among pharmacies nationwide that dispense medications in a retail pharmacy or outpatient clinic setting. Created under the Medicare Part D Program, DIR fees were originally intended as a way for CMS to account for the true cost of the drug dispensed, including any manufacturer rebates. Often these rebates were unknown until the drug was dispensed and the claim adjudicated. In general, it was originally a way for CMS to account for manufacturer rebates.
Recently, a concerning trend has emerged where pharmacy benefit managers (PBMs), have begun to charge DIR fees to their pharmacy providers. Under this scenario, PBMs are applying their own plan performance measures as a way to assess fees on pharmacies dispensing covered Part D drugs. This is problematic for the following reasons:

  • It is arbitrary and unintended application of measures meant for total plan performance as opposed to pharmacy-level metrics.
  • The quality measures applied tend to be based on maintenance medications such as blood pressure or medications used to treat diabetes. These measures were never intended to be applied to specialty medications, or other specialized disease states such as oncology, yet PBMs assess DIR Fees against the gross reimbursement for all prescriptions received by pharmacy providers, not just maintenance medications.
  • Pharmacy providers are essentially being penalized with “back door” fees without any requirement that PBMs define, justify or explain to providers and to CMS.

DIR fees assessed on pharmacies providing specialty medications have been especially hard hit. The reason for this is due to the fee structure. Fees could be a flat rate of per dollar per claim, or a percentage (typically 3 to 9%) of the total reimbursement per claim. Using the percentage based structure, the fees would increase markedly for specialty drugs that are typically much more expensive than maintenance medications, sometimes resulting in thousands of dollars. A 9 percent fee on a drug costing $100,000 is $9,000. Even more disturbing is that the fees are assessed retroactively, sometimes months after the claim has been adjudicated, providing no recourse for the pharmacy impacted by the assessment.

This has led to higher cost sharing responsibilities for Medicare beneficiaries which has in turn caused more of them to enter the Part D donut hole where the beneficiary is solely responsible for the cost of the drug. Along with the higher costs absorbed by the beneficiary, adherence rates tend to be lower among Medicare beneficiaries who are in the donut hole and may not have the financial resources to pay for their medications. This is in stark contrast to the very reason DIR fees targeting manufacturer rebates were created – so that savings could be passed on the beneficiary.

Pharmacies are not alone in their concern. In January 2017, CMS published a fact sheet expressing concern over DIR fees and cited them as contributing to increased drug costs, and in turn, increased beneficiary out-of-pocket spending and Medicare spending overall. While CMS stopped short of prohibiting the fees, the public concern expressed by CMS is a rare occurrence. Additionally, questions remain as to whether Part D plan sponsors have the authority to assess these fees on pharmacies. There are no references to DIR fees collected on pharmacies in either the MMA statute or corresponding CMS regulations.

Congress Weighs In

Legislation introduced in Congress would address this problem. H.R. 1038/S. 413, the “Improving Transparency and Accuracy in Medicare Part D Drug Spending Act”, would prohibit Medicare Part D plan sponsors from retroactively reducing payment on clean claims submitted by pharmacies under Medicare Part D. H.R. 1038 is sponsored by Representative Morgan Griffith (R-Va.), and has 27 bipartisan cosponsors, while S. 413 is sponsored by Senator Shelly Moore Capito (R-WV), and has 9 bipartisan cosponsors. Both bills are heavily supported by the National Community Pharmacists Association, who has identified this issue as their number one priority. The American Pharmacists Association has also recently signed on in support of the legislation, as has the American Society of Consultant Pharmacists. This legislation was originally introduced last Congress but did not advance.

While it is not a top priority for ASHP at the moment, we do believe that it is a growing concern among our members and as the fees continue to increase, it will become more visible as an unreasonable and unjustifiable cost to hospital retail and clinic pharmacists. To date, several of our members have expressed concern over the fees, and one of them reported fees totaling $250,000 in 2015 alone. Another estimated their DIR costs to be over $300,000 annually. Presently, we believe that DIR fees have a significant financial impact on hospitals, although they may not be aware. These charges are sometimes hidden within a hospital’s cost report, and are not readily visible.

ASHP is tracking this issue very closely, and is working on Capitol Hill and with other concerned stakeholders to address it.