Hospital Pharmacy - December 2017 - 740

739633
research-article2017

HPXXXX10.1177/0018578717739633Hospital PharmacyGabay

Rx Legal

Direct and Indirect Remuneration
Fees: The Controversy Continues

Hospital Pharmacy
2017, Vol. 52(11) 740-741
© The Author(s) 2017
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https://doi.org/10.1177/0018578717739633
DOI: 10.1177/0018578717739633
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Michael Gabay1

Abstract
The Centers for Medicare and Medicaid Services (CMS) initially created direct and indirect remuneration (DIR) fees with the
enactment of Medicare Part D in order to track rebates and other price adjustments made to pharmacy benefit managers
(PBMs). PBMs have expanded the use of these fees to "claw back" money from pharmacies on already dispensed medications.
Community and specialty pharmacies claim these fees are not transparent, hurt patients and taxpayers, and negatively impact
their fiscal bottom line, while PBMs assert that these fees actually reduce premiums for patients. Congress has stepped into
the dispute by introducing legislation that would halt retroactive DIR fees.
Keywords
legal aspects, pharmacists, education, managed care
The Centers for Medicare and Medicaid Services (CMS) initially developed the concept of direct and indirect remuneration (DIR) fees upon the enactment of the Medicare
Modernization Act of 2003.1,2 This Act created the Medicare
Part D prescription drug benefit.3 CMS contracts with various
plan sponsors (eg, UnitedHealth Group, Humana, etc) to
administer Part D plans for enrollees. These plan sponsors
subsequently contract with pharmacy benefit managers
(PBMs) to manage the drug benefit of Part D. PBMs, such as
Express Scripts or CVS Caremark, contract with pharmacy
providers, negotiate reimbursement rates, and process
medication claims. As part of these functions, PBMs negotiate
rebates from pharmaceutical manufacturers or establish
other price adjustments to prescription drugs that ultimately
lower the overall drug costs for Medicare Part D plans.2,4
DIR fees were originally intended as a way for CMS to track
the annual amount of these rebates and price adjustments so
that it can appropriately and legally base reimbursement on
the lowest price. However, over time, the original meaning
of DIR fee has expanded considerably.
Today, a DIR fee has essentially become a "catch all" term
used by PBMs that encompasses many different fees including costs for pharmacies to participate in a Part D preferred
network, price reconciliations based on contractual rates,
compliance fees for contract-based performance metrics, or a
combination of these fees.1,5 The actual amount of these fees
may range from $2 to as high as $12 per claim or may even be
a percentage amount per claim.5 This expansion of DIR fees
has resulted in controversy. Community and specialty
pharmacies argue that these fees are really a means for PBMs
to contractually "claw back" millions of dollars from pharmacies
on medications that are already dispensed. Often, pharmacies

note that DIR fees are charged back to them months after the
point-of-sale and that a lack of transparency in contract wording
makes pharmacies unable to accurately estimate how much
money will be owed to the PBM. In addition, the National
Community Pharmacists Association and the Community
Oncology Alliance argue that the new DIR fees negatively
impact patients and taxpayers.1,2 These organizations
argue that PBM DIR fees result in increased out-of-pocket
costs by driving patients more rapidly into the Medicare Part
D "donut hole" where they become responsible for a greater
portion of prescription costs.6 In addition, this could eventually
lead to taxpayers being on the hook for a significant portion
of a patient's health care costs if expenses mount and a patient
is pushed beyond the donut hole into Medicare's catastrophic
coverage phase. PBMs obviously have a different take on
these fees, stating that PBMs and DIR fees improve patient
care by reducing premiums and that eliminating these fees is
only a ploy to increase profits for community and specialty
pharmacies.7
The controversy surrounding DIR fees has even caught
the attention of Congress. In early 2017, bipartisan legislation
was introduced in both the House and the Senate that aims to
halt retroactive DIR fees on prescription drug claims.8-10 The
"Improving Transparency and Accuracy in Medicare Part D
Spending Act" states that PBMs "may not retroactively
reduce payment on such claim directly or indirectly through
1

University of Illinois at Chicago, IL, USA

Corresponding Author:
Michael Gabay, College of Pharmacy, University of Illinois at Chicago,
833 S Wood St, Chicago, IL 60612, USA.
Email: mgabay@uic.edu
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