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PUTT Statement to CMS Regarding the Medicare DIR Fee Proposed Rule Change

Mar 7, 2022

RE: Medicare Program; Contract Year 2023 Policy and Technical Changes to the Medicare
Advantage and Medicare Prescription Drug Benefit Programs (CMS-4192-P)

Administrator Brooks-LaSure:

I write to you today on behalf of our more than 400 small business pharmacy members. Pharmacists United for Truth and Transparency (PUTT) is a 501(c)3 organization founded to spread awareness of questionable, often wasteful and abusive, pharmacy benefit manager (PBM) practices that have resulted in the closure of thousands of independent pharmacies across the U.S. and by extension, the loss to millions of patients of their most accessible health care provider: their local pharmacist.

While we are grateful for the attention CMS has turned to the problems associated with Medicare Advantage Part D plans, we have only one recommendation: we urge CMS to fully eliminate DIR fees and pass PBM-negotiated price concessions directly to the patient at the point of sale.

Per a recent survey conducted by my organization, the average independent pharmacy pays $134,740 in DIR fees per store- and this is just among small business, rural and/or community pharmacies. Because fees are assessed on drug ingredient cost, the larger or more volume the pharmacy does, the more in DIR fees that pharmacy pays.

There is no evidence to show DIR fees have lowered drug prices or plan premiums for Medicare Part D plan enrollees. Per CMS, DIR fees have increased 107,000% in 10 years. Equally jaw-dropping is the rise of some PBM-owner/owned-by health insurers PBMs in the ranks of the Fortune 500 within the same 10-year period, with CVS Health and UnitedHealth ranking among the top 10 in the U.S. but also among the top 10 corporations in the world. While perhaps coincidental, the meteoric rise of PBMs and their health insurer parents, along with questionable but well-documented PBM practices including numerous state Medicaid studies demonstrating exorbitant spread pricing, seem to suggest PBMs may be illicitly profiting from DIR fees in the name of CMS.

Even with the proposed rule change, there is little reason to believe Medicare patients and pharmacy providers would see meaningful relief from DIRs, primarily for the following reasons:

PBMs justify the collection of DIR fees on the basis of “performance” and “quality” without standardized, measurable and/or achievable definitions of either. But these fees are assessed without feedback, and based on the ingredient cost of a medication, which is not related to the quality of service a pharmacy provides. Tying pharmacy reimbursements to performance measures is overly punitive; it is an inconsistent cost no pharmacy can plan ahead for, and in the absence of feedback, cannot be resolved.

PBMs justify the collection of DIR fees on the basis of patient outcomes, which are fully out of the control of the pharmacy once the medication has been dispensed and the patient has been counseled. Ostensibly, patient outcomes are tied to the treatment plan established between the patient and his/her physician, with the pharmacy serving as a key member of the treatment team. PBMs, however, base their standards for outcomes on actuarial tables established by statisticians and one-size-fits-all criteria, not unlike the parameters CMS sets forth in the pricing of health plan premiums (e.g. age, gender, area of country, typical chronic illness conditions by life stage, etc). PBMs collect “outcomes”-based DIR fees from pharmacies because they can, not because the pharmacy has control over the prescriber or patient. It is an illicit revenue-generation scheme that can only be stopped if DIR fees are eliminated in their entirety.

In no way can DIR fees be avoided. Fees are collected, regardless of quality, performance or patient outcomes. In the event a pharmacy presents flawless, high quality performance and stellar patient outcomes, the pharmacy is simply assessed a lower DIR fee.

In its current format, the proposed rule leaves unanswered questions and loopholes which can be exploited by PBMs. These issues are as follows:

“Negotiated price” must be clearly defined to include all price concessions negotiated by PBMs, otherwise pharmacies may be subjected to the current practice of PBMs restructuring “negotiated price” to include revenue for themselves.
The Medicare coverage gap, which currently creates a system in which Medicare patients are quickly pushed into the “donut hole” and pharmacies are subjected to a 2-cost system that is as confusing to pharmacy staff as it is frightening to a patient who may not understand the pricing differences. The coverage gap does not stop PBMs from charging DIR fees based on the higher of the dually-priced drug. The only solution is to close the coverage gap.
Potentially serious pharmacy cash flow crunches. Should the proposed rule be passed, pharmacies will see reduced reimbursements at the point of sale while at the same time facing payment for 2022-assessed DIR fees. Pharmacies not owned, and therefore not bankrolled, by PBMs face other costs associated with the business of pharmacy. Costs include PBM network certification/recertification; PBM transaction fees charged each and every time a pharmacy submits a claim for reimbursement; reduced and/or below-cost reimbursements for drugs already dispensed and consumed by the patient; and threats by PBMs for additional cuts to reimbursement should laws change and DIR fees, drug rebates or other price concession tactics be eliminated. Cash flow is critical to a pharmacy trying to stay in business and participating in a PBM network.

DIR fees are draconian, regressive, and creating unnecessary obstacles that undercut pharmacy patient care . In the absence of transparency, and with the rise of pass-through PBMs that do not charge pharmacies DIR fees, we must take the case that DIRs are revenue ploys for the largest PBMs, whose first allegiance is to shareholders, not patients.

With the closing of the comment period, I’m sure you will have received valuable input from thousands of pharmacists and numerous organizations sharing their stories of how DIR fees create conditions of unworkability and non-sustainability in the daily act of patient care. Having heard from so many of us about the impact of these exorbitant fees on our practices and the resulting restraints placed on our ability to hire additional staff, expand our services or even be able to contribute to our communities, it is my hope CMS will see how palpably real the problem is and take equally real and palpable action to terminate DIR fees.

On behalf of the PUTT Board of Directors and our members, thank you for your consideration of our comments. While it will not stop the entirety of PBM exploitation of the U.S. prescription drug system, eliminating DIR fees will restore a modicum of sustainability to America’s small business pharmacies and keep patients within reach of a local, accessible health care provider.

Yours in advocacy,

Monique Whitney
Executive Director
Pharmacists United for Truth and Transparency

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