D-I-R … the acronym that has become the bane of pharmacies across the country. With the downvote of the NCPA-backed DIR transparency bill earlier this year, it appears they are here to stay, at least for the foreseeable future. And for those participating in 340B programs as contract pharmacies, as luck would have it, you are paying DIR fees twice, once to the PBM and once to your partner 340B Covered Entity.
To be clear, there is no blame to place here on any 340B stakeholder. It is simply an unfortunate perfect storm created from the combination of two exclusive mechanisms:
1. The process by which prescription claims are gathered by the 340B administrative software for qualification.
2. The retrospective incurrence of DIR fees.
From a high level, one might look upon this scenario and come to the conclusion that a pharmacy, regardless of its participation in a 340B arrangement, will incur DIR fees on Medicare Part D claims. This, therefore, attributes DIR fees to the normal course of business, with 340B having no impact one way or another. In fact, one might take that a step further to say that DIR fees in a retail setting reduce pharmacy margins, increasing the value of 340B dispense fees for the pharmacy business. Sadly, the opposite is true. A closer look into the details will reveal that there are no differing opinions on this matter, only one factual conclusion.
Let’s evaluate two statements:
- A retail pharmacy (independent, chain, mail, specialty, etc.) is dealing with the imposition of DIR fees whether they are a 340B contract pharmacy or not. Correct, we can all agree that this is true.
- 340B has no bearing or impact on a pharmacy with regards to DIR fees. WRONG! This is false. This is where lack of understanding conjures a false reality and one must take a deeper dive toward enlightenment.
I will remind the reader again that there is no blame to place on any stakeholder in a 340B contract pharmacy arrangement for this reality. It is not any one party’s fault, rather the confluence of the two exclusive mechanisms. Let’s take a look at a specific example in order to understand how this all goes down and the result.
First, we’ll set some parameters:
Drug = Xarelto 30mg; 30qty
Pharmacy 340B Fee = $25
Patient Copay = $20
Adjudicated Plan Reimbursement = $180
Total Adjudicated Amount to Pharmacy = $200
Now we’ll follow this transaction through its 340B journey from start to finish as it happens today. 340B claim qualification, when a 340B administrator (TPA) is involved, does not occur at the point of sale. The claim is submitted to an individual’s insurance at the pharmacy with no changes to the process for either pharmacy or patient. The pharmacy submits the Rx to the insurance, the plan/PBM adjudicates the transaction to determine the patient’s financial responsibility as well as the plan’s, the patient pays their copay, and the plan lets the pharmacy know what remaining amount is to be covered by the insurer. All of these transactions are processed through a clearinghouse called a “switch” that routes the submitted claim to the correct plan/PBM and returns the adjudicated information back to the pharmacy (copay and plan paid amount). One pharmacy may have hundreds, even thousands, of these transactions per day. The 340B TPA vendor receives these transactions daily, directly from the switch processor. The transactions are dumped into the rules-based software for 340B qualification, accumulation, and eventual ordering of the accrued product. The system calculates the financial information on a qualified transaction based on the adjudicated amounts it receives in the switch data. The 340B contract dispense fee rates are deducted from the adjudicated total and the pharmacy pays the remainder to the 340B eligible facility. So, using the parameters above, the pharmacy would pay $175 to the Covered Entity (CE) in this 340B claim example ($200 minus $25 dispense fee = $175 paid to CE). Following? Good.
Let’s shift attention now to DIR fees and how they are incurred. When a claim is adjudicated by the plan/PBM, the pharmacy receives this information electronically almost immediately. However, actual payment on the transaction is not remitted until weeks, even months, later in batches. Medicare D plans/PBMs that charge DIRs withhold the DIR fee amount from this remittance or perform a “clawback” at a future date in effect reducing the actual reimbursement on the claim to the pharmacy. Herein lies the problem. Remember, the 340B software sees the ADJUDICATED total on a claim through the switch; it DOES NOT see retrospective DIR fees imposed nor the true ACTUAL reimbursement to the pharmacy.
Let’s go back to our parameters and example with the inclusion of a DIR fee:
Drug = Xarelto 30mg; 30qty
Pharmacy 340B Fee = $25
Patient Copay = $20
Adjudicated Plan Reimbursement = $180
Total Adjudicated Amount to Pharmacy = $200
DIR Fee = $20
Total ACTUAL Payment to Pharmacy = $180
Calculating based on the adjudicated amount results in the pharmacy paying $175 to the Covered Entity, remember? But now, due to the reduction in actual reimbursement from the $20 DIR fee down to $180, the pharmacy should only have paid $155 to the Covered Entity ($180 minus $25 dispense fee = $155). The pharmacy has paid $20 too much to the entity, effectively paying the DIR fee twice — once to the PBM, once to the CE.
Accounting for and addressing DIR fees in 340B is not a ploy to pull dollars away from safety-net facilities or a backdoor way to increase profits. This issue is real and negatively affects only one stakeholder, the pharmacy. No one, whether pharmacy or in any other situation, should be asked to pay money that they never received. Pharmacies participating in current or future 340B programs must address DIRs one way or another to truly receive their contracted 340B rate. At this point, there’s not much to be done about DIRs [from a legislative standpoint], but DIRs in 340B is a leak that can and must be plugged for any pharmacy and/or Covered Entity participant.
About the Author:
Eric Fromhart is the Co-Founder and CEO of Secure340B, a 340B program advocate dedicated to true transparency and optimization for 340B Contract Pharmacy programs and stakeholders. Eric started his 340B career out of college working for two 340B Administrative companies and as an in-house 340B subject matter expert at a drug wholesaler. The combination of detailed knowledge and experience in both the 340B and retail pharmacy environment puts Secure340B in a different category within the 340B space. For questions on the 340B itself or about Secure340B service offerings, including the proprietary DIRDefense platform, please visit www.secure340B.com/contact.
