On Dec. 14, 2021, the Centers for Medicare and Medicaid Services (CMS) unexpectedly issued a letter to U.S. Senator Ron Widen (D-OR)[1] indicating that CMS plans to use its “administrative authority to issue proposed rulemaking” addressing price concessions and direct and indirect remuneration (DIR) fees that pharmacy benefit managers (PBMs) have increasingly charged to specialty and retail pharmacy providers in Medicare and other pharmacy benefit programs in recent years. CMS’s letter is welcome news to pharmacy providers around the country and could result in substantial disruption to a multi-billion-dollar line of fees that PBMs have previously realized.

If you or your organization are impacted by DIR fees, claw backs, price concessions, or other PBM-charged processing fees, it will be imperative to monitor CMS’s proposal. Further, your organization can take additional steps to protect its interests by evaluating methods to offset or reduce DIR fee impacts and strategies to account for what may be a monumental shift in pharmacy reimbursement methodology.

At its core, CMS’s proposal will center on DIR fees, which are essentially fees that PBMs charge against pharmacies after the point of sale and typically months after the pharmacy was initially paid for its services. DIR fees are usually charged by PBMs based upon quality and performance metrics, such as a pharmacy’s formulary dispensing adherence, although some DIR fees are simply charged as network participation (i.e., pay-to-play) fees. Remarkably, DIR fees have been a major source of revenue for PBMs and have increased by an astonishing 91,500% over the past nine years.[2] DIR fees also generally impact specialty pharmacies more heavily when compared to their retail or chain pharmacy counterparts.

Given the considerable increases in DIR fees of late, as well as their near ubiquitous use across the pharmacy benefit landscape, pharmacy providers of all types are generally supportive of CMS’s proposal. However, it remains to be seen whether CMS will also evaluate other similarly opaque fee and reimbursement practices PBMs employ such as claw backs, price concessions, and maximum allowable cost (MAC) pricing adjustments.  Further, in the event CMS chooses to regulate the imposition of DIR fees, PBMs, in turn, could also take remedial action, such as reducing overall reimbursement or increasing patient-facing charges, such as co-payments. 

Should you or your organization have any questions about CMS’s DIR fee proposal or wish to learn more about strategies to address DIR fees and other PBM-imposed charges, please contact Dinsmore’s health care or life sciences group of attorneys.