Mar 16 2021

NCPA Files Lawsuit to End DIR Fees

The National Community Pharmacists Association (NCPA) has filed a lawsuit against the U.S. Department of Health and Human Services (HHS) as a way to gain relief from the federal agency's purported failure to address the issue of direct and indirect renumeration fees (DIR fees). The lawsuit was filed in January 2021, with then-HHS Secretary Alex Azar listed as the plaintiff.

According to NCPA CEO B. Douglas Hoey, the lawsuit was filed as a last resort, after years spent trying to address the issue through both legislative and regulatory channels. "Filing this lawsuit was not a decision we made lightly," Hoey said in a webinar discussing the action, noting the costs the suit is likely to incur and the length of time expected before a judicial ruling.

DIR fees refer to assessments made by pharmacy benefit managers (PBMs) on pharmacies after transactions have been completed and settled. Funds are essentially "clawed back" from the pharmacy long after a transaction has been settled and recorded in the pharmacy's books. According to the National Association of Chain Drug Stores (NACDS), DIR fees are the direct result of a loophole in Medicare regulations. "Often more than half a year after a pharmacy fills a Medicare prescription, payers are taking back money paid to pharmacies. Payers are claiming they are taking back money due to a pharmacy's performance on so-called quality measures," the NACDS explained, "however these quality measures can be unknown, unpredictable, inconsistent, and outside of a pharmacy's control."

Investigating this inconsistency, the Centers for Medicare & Medicare Services found the imposition of DIR fees surged by 45,000 percent between 2010 and 2017. Additionally, the text of the lawsuit filed by NCPA notes, "DIR fees now average more than one percent of all prescription drug sales and more than five percent of gross pharmacy profits." In a press release announcing the lawsuit, NCPA's Hoey stated that "60 percent of community pharmacies believe they may go out of business in the next two years if the clawbacks are not addressed."

NCPA has put elimination of DIR fees at the top of its priority list for several years. While those efforts have come close, none succeeded in achieving the desired outcome NCPA sought on behalf of the nation's community pharmacies.

In the webinar explaining the lawsuit, attorney Stephanie Webster of Ropes & Gray law firm explained the premise on which the lawsuit is based. "This suit challenges the 'negotiated price' definition under Medicare Part D that has allowed the dramatic increase in DIR," Webster explained. "The specific problem," she continues, "is an exception that excludes from the negotiated price definition 'contingent pharmacy price concessions that cannot reasonably be determined at the point of sale.'"

As a result, Webster further explained, "these price concessions are included in DIR and we argue in the lawsuit that this exception is legally invalid for several reasons."

Specifically, Webster discussed the three premises on which the lawsuit is based:

  • First, it's inconsistent with the text and purpose of relevant parts of the Medicare statute. Negotiated price is supposed to include all price concessions, without exception.
  • The loophole that's been created is arbitrary and capricious and not based on substantial evidence before the agency. When an agency is working on an issue, it's supposed to explain its decision and a rational connection between the evidence it reviewed and the decision it reached, which is not the case here. Among other things, the agency failed to adequately consider the prevalence of price concessions made after the point of sale. The agency said it would be a narrow exception, when in practice the exception is gaping.
  • Utter lack of proper notice and comments. This exception wasn't adopted with advance notice and opportunity for comment.

Attorney Webster advised that a final ruling on the lawsuit is not expected until "sometime in 2022," as the legal process will take time to run through the various stages of evidentiary discovery and judicial review.

"DIR fees were never intended as a way to abuse pharmacies, seniors, and taxpayers," NCPA's Hoey said in the webinar. "But that's exactly what they've become. Pharmacies are pushed to the financial brink. Seniors are paying more for prescription drugs and taxpayers are getting their pockets picked. Everyone suffers while the PBMs benefit...enough is enough."