CMS issued a final rule that eliminates PBMs’ retroactive application of direct and indirect remuneration (DIR) fees, beginning in 2024, requiring that they be reflected in the negotiated price the patient pays at the pharmacy counter. This creates greater transparency for patients and pharmacies.

DIR fees are price concessions negotiated between PBMs and pharmacies participating in Medicare Part D networks. Retroactive DIR fees are assessed weeks, or even months, after Part D beneficiaries’ prescriptions are filled, resulting in pharmacies realizing only long after the prescription was filled that they did not recoup their costs. Between 2010 and 2020, CMS reported that retroactive DIR fees increased by a staggering 107,400%. These fees also result in patients paying more at the pharmacy counter for their prescription drugs.

The final rule merely moves the fees to the point-of-sale negotiated price. It does not eliminate these fees.

CMS also eliminated in the final rule a proposal that would have left it up to the health plans and PBMs to decide how much, if any, of the pharmacy price concessions, they would pass through to patients at the point of sale during the coverage gap in the Medicare Part D program. This creates consistency for patients and pharmacies.

Although the entire pharmacy community has been pushing to eliminate retroactive DIR fees, how the final rule is implemented could still create some uncertainty and financial impacts on pharmacies. There is more that must be done to address the harmful and anticompetitive business practices by PBMs.

What’s in CMS’ final rule?

• CMS’ final rule includes all price concessions (including all DIR fees) in the “negotiated price,” at the pharmacy counter, beginning on January 1, 2024 (contract year 2024). This will increase consistency for Part D plans and transparency for patients as well as help pharmacies better determine whether they can afford to stay open.
• CMS also addresses Part D plans’ and PBMs’ use of “network access fees,” “administrative fees,” “technical fees,” and “service fees” for pharmacies to participate in Part D plans’ networks. If these “fees” are deducted from payments made to pharmacies for purchases of Part D drugs, CMS treats these costs as “price concessions,” and they must also be reflected in the “negotiated price” at the point of sale. CMS also states that it may provide further clarification of “pharmacy administrative service fees” in a future rulemaking if PBMs use these “fees” in attempts to retain additional profits.
• CMS’ proposal sets a floor for pharmacy payment as the “lowest possible reimbursement” and allows for bonus payments for improved performance. Applying all pharmacy price concessions to the “negotiated price” at the point of sale will provide pharmacies with more information on the reimbursement they will receive for achieving/not achieving performance metrics.

Who benefits and why?

• Patients will have reduced out-of-pocket costs.The final rule moves all pharmacy price concessions, including retroactive DIR fees, to the point of sale to benefit patients with lower cost sharing.
• Pharmacists will have increased predictability.Effectively eliminating PBMs’ use of retroactive DIR fees increases predictability for pharmacies and addresses a regulatory loophole CMS opened in 2014 that allowed PBMs to have unlimited license to apply retroactive DIR fees.

What’s not in CMS’ final rule?

• CMS does not eliminate PBMs’ use of DIR fees.Under the final rule, PBMs will still be able to use DIR fees to extract arbitrary fees, moving them to the point of sale (i.e., utilizing a bonus payment model), in addition to extracting other unreasonable concessions from pharmacies.
• CMS acknowledges, but does not address, the impact on pharmacy cash flow.The final rule acknowledges the “possibility that changes in cash flow may cause some already struggling pharmacies to decrease services or medication availability, and/or be unable to remain in business, which may impact pharmacy networks.” However, CMS fails to address the transition period for pharmacies from calendar year (CY) 2023 to (CY) 2024. Under the final rule, pharmacies will receive the “lowest possible reimbursement” in 2024 while PBMs continue to collect pharmacy DIR fees from 2023, which could create significant cash flow issues for pharmacies during the transition. While CMS “encourages Part D plans to consider options, such as payment plans or alternate payment arrangements, to minimize impacts to vulnerable pharmacies and the patients they serve,” there is no requirement for Part D plans to address these cash flow concerns at the beginning of 2024.
• CMS does not close other PBM loopholes.PBMs are still able to continue other harmful business practices such as negative reimbursements (through which the PBM reimburses the pharmacy less than it costs to acquire the drug) and “patient steering” for brand, generic, and specialty drugs to PBM-affiliated pharmacies.

Example of how Part D plans and PBMs will report costs/DIR under the final rule:

• Example: Assuming a Part D plan and a network pharmacy have a performance-based payment arrangement to: 1) recoup 5% of its total Part D-related payments to the pharmacy for the pharmacy’s failure to meet performance standards, 2) recoup no payments for average performance, or 3) provide a bonus equal to 1% of total payments to the pharmacy for high performance.
  • For a drug that the Part D plan has agreed to pay the pharmacy $100 at the point of sale, the pharmacy’s final reimbursement under this arrangement would be: 1) $95 for poor performance, 2) $100 for average performance, or 3) $101 for high performance.
    • The “negotiated price” reported to CMS on the prescription drug event record at the point of sale for this drug would be $95, or the “lowest possible reimbursement” under the arrangement.
    • Thus, if a Part D plan were required to pay 25% coinsurance for this drug, then the patient’s costs under this scenario would be 25% of $95, or $23.75, which is less than the $25 the enrollee would pay today (when the negotiated price is likely to be reported as $100).
    • Any difference between the reported negotiated price and the pharmacy’s final reimbursement for this drug would be reported as DIR. Under this requirement, the Part D plan would report $0 as DIR under the poor performance scenario ($95 minus $95), -$5 as DIR under the average performance scenario ($95 minus $100), and -$6 as DIR under the high-performance scenario ($95 minus $101) for every covered claim for this drug purchased at this pharmacy.