Independent Pharmacies Suffer from DIR Fees; PBM Champions for Change

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Lack of accountability and standardization in the assessment of DIR fees contribute to yet another challenge for small independent pharmacies to yield a profit. This could spell disaster for small-town residents and business owners and will be detrimental to entire communities, according to PBM MC-Rx’s LaMar Williams.

MC-Rx is a full-service Pharmacy Benefit Manager (PBM) with corporate offices in Gainesville, Georgia and Caguas, Puerto Rico, with focuses on transparency, best-in-class service, and offering clients “lowest net cost.” MC-Rx was formed by combining two URAC-certified, world class PBMs - ProCare Pharmacy Benefit Manager and mc-21.

LaMar Williams, Executive Vice President of MC-Rx, is calling for reform in the PBM world when it comes to DIR fees.

"It is simply not a good business practice to impose DIR fees on pharmacies without fair negotiation and open disclosure."

As more independent pharmacies close or file for bankruptcy across the U.S., industry experts are looking for ways to improve, standardize and make transparent DIR fee calculations as a means to boost pharmacy solvency, particularly in urban and small rural towns, which are being hit the hardest by closures. “It is simply not a good business practice to impose DIR fees on pharmacies without fair negotiation and open disclosure,” said LaMar Williams of MC-Rx, a Pharmacy Benefit Manager (PBM) that is calling for reforms. “PBMs are benefiting from these fees, while out-of-pocket costs for prescription drugs continue to go up. Reform and open disclosure will allow pharmacies to measure and manage the DIR fees and better gauge which PBM network they prefer.”

Direct and Indirect Remuneration (DIR) represents any money that a Medicare Part D plan that a PBM may collect to offset member costs, including discounts, rebates, coupons, etc. Initially, this was done via a reconciliation between the claim and the negotiated price, or when a pharmacy would pay the PBM in order to participate in a preferred network – a “pay to play” scenario. However, PBMs have begun expanding DIR fees for commercial plans too. DIR fees can be assessed in multiple forms, often unknown to the dispensing pharmacy that is forced to pay PBMs any assessed and arbitrary DIR fee.

According to a report in the Journal of the American Medical Association (JAMA), “one in eight pharmacies had closed between 2009 and 2015, which disproportionately affected independent pharmacies and low-income neighborhoods [1].” The same report noted that improvement strategies should include the consideration of “payment reforms, including increases in pharmacy reimbursement rates for Medicaid and Medicare prescriptions,” which experts agree is a complex process.

Frequently, the DIR fee is assessed on “pharmacy performance,” of which the parameters are unclear, and in many cases, the fee is more than the customer paid for the prescription, creating a scenario in which the pharmacy actually loses money on the transaction. There is currently no legal requirement for PBMs to share their formula for calculating DIR fees.    

A report issued by the Government Accounting Office (GAO) reported that in 2016, PBMs negotiated roughly $18 billion in rebates from drug makers for Medicare Part D plans and passed all but $74 million on to the plan sponsors [2]. The GAO reviewed 20 service agreements between Part D sponsors and PBMs and found the primary source of revenue for PBMs was the volume-based fee paid by plan sponsors based on the number of paid claims the PBM processed. The report found that none of the service agreements tied these fees to the price of a drug paid to the pharmacy.

The cost and use of prescription drugs is expected to continue to rise in the coming decades, as the number of older Americans increases and requires more medical treatment and medication. A report by the Senate Homeland Security and Governmental Affairs Committee found that, on average, prices for the 20 brand-name drugs that are prescribed most often for seniors have increased by 12 percent every year for the last five years [3].

“The unpredictability (of DIR fees) is crushing small, independent pharmacies because they’re losing profits and have no way of accurately planning their finances,” Williams said. “MC-Rx charges mere cents where other PBMs are charging dollars for these fees, and we include clear statements as to the amount and nature of those fees in the contract with the pharmacy provider. We believe that an open arrangement in which clients and pharmacy partners have access to full claim level reconciliation of their billing and payments is the best way to proceed for all parties in this delivery chain. This must become a standard practice in the PBM industry to protect and facilitate independent pharmacies.”

About MC-Rx
MC-Rx is a full-service Pharmacy Benefit Manager (PBM) with corporate offices in Gainesville, Georgia and Caguas, Puerto Rico, with focuses on transparency, best-in-class service, and offering clients “lowest net cost.” MC-Rx was formed by combining two URAC-certified, world class PBMs - ProCare Pharmacy Benefit Manager and mc-21. The ProCare companies were founded in 1988 with the vision of providing innovative computer software systems and services to various sectors of the healthcare industry. ProCare processed their first pharmacy claim in 1994 using their proprietary, internally developed and managed systems, and expanded in 1998 to full-service pharmacy benefit management through the acquisition of NextGen PBM. Today, the ProCare companies also include two affiliated mail order and specialty pharmacies, ProCare PharmacyCare, and are one of only four PBM providers that own all of their component systems. MC-Rx now provides comprehensive, industry-leading service to clients in Puerto Rico and the U.S. Visit http://www.mc-rx.com/.

1. “Assessment of Pharmacy Closures in the United States from 2009 Through 2015,” JAMA, October 21, 2019
2. “GAO Highlights,” Government Accounting Office, July 2019
3. “Manufactured Crisis; How Devastating Drug Price Increases Are Harming America’s Seniors,” US Senate Homeland Security & Governmental Affairs Committee, September 2017

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KJ Helms
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