DIR Fee Reform: Lining Up Another Win for Patients on Drug Costs

Health and Human Services Secretary Alex Azar and the Trump administration are positioned to deliver results for patients and the nation on two highly complex and highly connected health policy issues.

One of these issues — lowering patients’ out-of-pocket drug costs — ranks among Americans’ top concerns, right up there with maintaining coverage for pre-existing conditions. The other issue — the harm to patient health and increased health care costs that result when patients fail to take their medications as prescribed — is so important that it often is called America’s “other drug problem.”

The complexities are well-documented. Efforts to reduce out-of-pocket drug costs long have been stymied by, among other factors, a stunning lack of transparency in the system. Efforts to improve patients’ use of prescription medications are confounded by the many different reasons that people neglect to maintain, or even begin, their therapy.

While the complexities of drug pricing and prescription use are well-documented, so are the connections between the two. Studies find that the cost of prescription drugs is cited routinely as a primary obstacle to taking medications as prescribed.

That, in turn, leads to poorer health, increased reliance on more costly forms of care and higher health care costs across the board. Failure to take medications as prescribed has been estimated to contribute to between $100 billion and $290 billion in unnecessary health care expenditures every year.  

HHS has proposed a crucial strategy to help address these issues. Like many things in health care, the term sounds complex: “direct and indirect remuneration fee reform.” However, it is a common-sense approach to lowering patients’ out-of-pocket drug costs.

The amount that Medicare beneficiaries must pay for a prescription drug is supposed to be based on the cost of the drug. However, health plans often calculate patients’ drug prices without subtracting the dollars that the plans claw back from pharmacies many months after the prescription is dispensed.

So, patients’ drug costs are artificially inflated, because they are calculated based on an inflated base figure that is more than the plans really pay for drugs. HHS has concluded that eliminating this drug pricing game would reduce patients’ drug costs by an astounding $14.8 billion over 10 years.  

Suffice it to say that DIR fees have mutated dramatically from their original intent. At this point, they are loopholes that are being used by plans to claw back exorbitant amounts of money from pharmacies — to the ultimate detriment of patients and the nation as a whole. The Centers for Medicare and Medicaid Services has indicated that DIR fees have exploded 45,000 percent from 2010 to 2017.

To summarize, it is simply unsustainable for pharmacies — or for any business — to be undercompensated, often below cost, for goods and services, and for this reimbursement to be completely unpredictable. That is just the beginning of the story, as the unsustainable cycle proceeds from there: higher drug costs, lower medication adherence, diminished patient health, greater reliance on expensive treatments and higher overall health care costs.

To break this cycle, the Trump administration should finalize its proposals to reform DIR fees, a tremendous advancement toward realigning incentives for better health and lower health care costs.

This reform would maintain momentum from the new law enacted in October 2018 that bans “gag clauses.” That gag-clause-prevention law assures that pharmacists are allowed to tell patients when they can save money by paying cash for a prescription instead of using their insurance.

A national poll conducted in January by Morning Consult and commissioned by the National Association of Chain Drug Stores found that 79 percent of registered voters support the new law banning gag clauses. Further, 86 percent support pharmacists using their expertise to identify other opportunities in public policy that can help to lower patients’ out-of-pocket drug costs.

With that in mind, DIR fee reform is pharmacy’s strong recommendation, and it is sound policy. The time is now to continue to log victories such as DIR fee reform that will achieve real progress on issues facing Americans.


Steven C. Anderson, IOM, CAE, is president and CEO of the National Association of Chain Drug Stores.

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