Pharmacists: Medicare Fee Program Costing Seniors

It seemed like such a good idea at the time.

U.S. pharmacies collecting millions of Medicare dollars would be offered incentives to do more than simply push pills. If they don't meet the new standards, such as making sure their patients receive their medications and get flu and pneumonia shots, they'll have to give up some of that Medicare funding.

The concept featured Direct and Indirect Remuneration fees, or DIR fees. Such fees "were originally supposed to be a way to offer incentives instead of a way to 'claw back' money from pharmacies," the Pharmacy Times noted.

Despite this intent, the incentives never materialized. Instead, DIRs evolved into a system that today offers pharmacies only penalties through higher and higher fees — even if every performance standard is achieved, pharmacists say. The sole "incentive" is a small reduction in those fees for meeting the standards.

That reality has brought accusations from a wide range of Medicare advocates and pharmacy supporters that the setup gouges pharmacies while benefiting health insurers and their pharmacy benefit managers that set nebulous performance standards without input from federal health officials.

In response, these insurers and drug supply chain middlemen PBMs — which are often the same company in America's highly consolidated health care market — say they are only doing what the federal government allows them to do under a key 2014 rule change.

Implemented when Medicare Part D was enacted in 2006 but significantly modified by the rule change eight years later, pharmacies' DIR fees skyrocketed 91,500% from 2013 to 2019, the Centers for Medicare and Medicaid Services say. The fees now total $11.2 billion a year, according to drug price guru Adam Fein, who writes Drug Channels newsletter.

A typical community pharmacy currently pays roughly $81,000 annually, a survey by the National Community Pharmacists Association shows. Some Ohio pharmacists say they pay annual assessments of hundreds of thousands of dollars.

Across the country, major pharmacies pay major DIR fees. Fairview Pharmacy Services, which has more than 30 locations across the Minneapolis-St. Paul area, shelled out $4.4 million in 2019, or 5.65% of its total reimbursement for claims, said Tim Affeldt, vice president of specialty/infusion operations. About $3.7 million of that total was split almost evenly between PBM CVS Caremark and health insurer Humana.

The pharmacists say that the amount of each bill is always impossible to predict and never arrives until months after seniors' original drug purchase.

They say that no matter how good their services, they will be assessed a DIR fee.

"I'm not even sure if Christ himself" could have avoided a penalty, says former GOP state Sen. Dave Burke of Marysville, who ran a pharmacy until late last year.

"I've never seen a study that this added to the quality or longevity of people's lives."

FDS Amplicare, a pharmacy software company based in Fort Worth, Texas, notes that even pharmacies that achieved a coveted five-star rating often get penalized for not meeting the DIR standards.

The American Society of Health-System Pharmacists says higher DIR fees financially affect those covered under Medicare Part D, the federal prescription drug program for those 65 and older that has nearly 50 million enrolled.

The CMS points out that Medicare pays more because it covers the initial, artificially inflated charge at a drug store, before the pharmacy's bill is lowered months later by retroactive DIR fees. That has two effects:

Patients often pay more because they are pushed more quickly toward the "donut hole" in Medicare coverage (reached, in 2021, after spending $4,130 out of pocket on covered drugs), in which they are responsible for paying 25% of a drug's cost.

The inflated price also costs Medicare more by pushing recipients through the donut hole more quickly into catastrophic coverage (after spending $6,550), where Medicare picks up 80% of the bill for coverage.

But insurers and other supporters say the DIR fees, which never wind up with the Medicare patient, are needed to ensure better care and keep drug costs down. The Pharmaceutical Care Management Association, the trade group for PBMs, says Medicare Part D's 2021 and 2020 average basic premiums were the second-lowest and lowest, respectively, since 2013.

"DIR rewards pharmacies for improving patient care and is an important tool for keeping independent drugstores accountable for doing their part to improve beneficiary health outcomes, increase access to medications, and lower prescription drug costs," said Greg Lopes, a spokesman for the PBM group.

The DIR fees are the subject of a federal lawsuit, filed by pharmacy groups, which says the system "threatens the solvency of community pharmacies and drives up the cost of prescription drugs for Medicare patients nationwide.

A pharmacy with several stores in southeast Ohio is helping to lead the way in the litigation against Health and Human Services Secretary Xavier Becerra.

Fruth Pharmacy is a family-owned chain of 29 community pharmacies serving more than 100,000 patients a year in Appalachian portions of Ohio, West Virginia and Kentucky.

Andy Becker, Fruth's vice president of pharmacy, called the DIR dilemma "insane."

"We don't even make a 1% profit," he said. "They have been paying us below what we pay for drugs to fill a prescription. How does that make any sense? How do you stay in business doing that?"

Fruth's DIR fees leaped from just under $1 million in 2017 to more than $4.5 million in 2020, equal to nearly 4.5% its total revenue, the lawsuit says. That's forced Fruth to close five locations since 2014, "all of which were providing essential services to underserved communities with older, sicker populations."

Fruth also has had to lay off employees, freeze wages, eliminate its 401K match, cease paying any dividends to shareholders, cut pharmacists' salaries and reduce store hours, including closing on all holidays.

"These changes have had dire consequences for Fruth's patients," the lawsuit says, including a 12% drop serving those "desperately in need of medication and care management. The steady increase in retroactively imposed price concessions threatens Fruth's existence."

The Department of Justice under President Joe Biden says the pharmacies' lawsuit should be thrown out, even though the 2014 CMS rule change "might" have allowed health insurers "to shift some amount of business risk to pharmacies and reap greater profits."

While those who brought the court challenge may have a legitimate beef about how the DIR fees are being handled, that's between them and the health insurers/PBMs with which they signed contracts, says a May 14 motion by Acting Assistant Attorney General Brian M. Boynton.

In June, bipartisan lawmakers in both the U.S. Senate and House rolled out the Pharmacy DIR Reform to Reduce Senior Drug Costs Act. Ohio Democratic Sen. Sherrod Brown is a co-sponsor.

The proposal would require that the final price for a drug be determined when the prescription is filled, not allowing retroactive fees months later; order CMS to develop "standardized, evidence-based measures that will be used to assess the performance of a pharmacy" rather than rely on health insurers' and PBMs' "own secret criteria"; and mandate that insurers inform pharmacies in advance about their rules to assess fees.

"Our legislation will help ensure pharmacies remain open and our Medicare patients will continue to have access to the medications and information they need from those they trust," said one of the main co-sponsors, Sen. Shelley Moore Capito, R-West Virginia.

The federal government currently doesn't control what performance standards the insurance companies and PBMs use for pharmacies.

But starting in January, Part D insurers must disclose to CMS the measures they use to evaluate pharmacy performance, as established in their network pharmacy agreement. The federal agency will analyze how they are applied.

Areas typically included on current checklists for pharmacies include medication safety, whether a patient has gotten flu and pneumonia shots, and coordination with other health-care providers.

Some pharmacists complain they are being judged on material that's not relevant to a particular pharmacy, such as whether a cancer clinic patient is adhering to diabetes treatment. Or a pharmacy may get dinged for not providing an ACE inhibitor for a diabetic, when that's not always the best course of therapy.

Fruth Pharmacy's Becker, noting all the COVID-19 vaccinations that were given in community pharmacies this year, turned philosophical as he considered the future.

"What people need to think about in the broader context is what does it mean to have a community pharmacy? And what does it mean if it's not there anymore?"

A grant from the nonpartisan, nonprofit National Institute for Health Care Management helped pay for research for this story; the organization had no input on its content.

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