APhA, its pharmacy partners, and community pharmacies have long argued that PBMs working with Medicare Part D plan sponsors’ use of retroactive direct and indirect remuneration (DIR) fees cheats beneficiaries, forces pharmacies to close their doors, and endangers access to pharmacist-provided care. After years of unsuccessful attempts to get relief via legislation or regulation, APhA has signed on as an equal partner in a federal lawsuit demanding that HHS end the “deceptive” practice.Who saves and who paysOriginally filed by the National Community Pharmacists Association (NCPA), NCPA v Becerra alleges that a 2014 HHS rule violated the language and congressional intent of the 2003 Medicare Prescription Drug, Improvement, and Modernization Act. “When Congress established Medicare Part D, it would never have approved of a system in which PBMs and Part D plans could squirrel away money that rightly belongs to patients,” APhA said in a statement.PBMs extract retroactive DIR fees from pharmacies weeks or months after they dispense prescriptions to Part D patients. The fees are based on savings that PBM and Part D plans generate by requiring pharmacies in their networks to make price concessions—pharmacies that don’t agree to make these concessions are excluded from plans’ preferred networks.The scheme does not pass the savings on to Part D beneficiaries. Since their prices or copays at the pharmacy counter are based on contracted prices before retroactive DIR is extracted, beneficiaries end up paying higher out-of-pocket costs.Disproportionate impactFurthermore, the retroactive nature of the fees prevents pharmacy businesses from determining whether they can afford to stay open—and many cannot. An October 2019 JAMA Internal Medicine paper by Qato and colleagues reported that one in eight pharmacies closed between 2009 and 2015.Evidence also shows significant growth in pharmacy deserts across the country. A May 2021 Health Affairs study by Guadamuz and colleagues found that neighborhoods with predominantly Black or Latinx residents are significantly more likely to be affected. In Chicago, for example, 32.6% of Black neighborhoods are pharmacy deserts, compared with 1.2% of white neighborhoods. The COVID-19 pandemic highlighted the danger of this trend. Black communities and other communities of color were much harder hit than their white counterparts, and pharmacies were important access points for COVID-19 services, including testing and vaccinations.Independent pharmacies in rural and underserved areas bear the brunt of the closures, but retroactive DIR fees affect all pharmacies that serve Part D patients. This is an additional harm to older adults and millions of other Americans who need access to local health care providers, plaintiffs say.Pandora’s boxWhile other types of PBM-negotiated price concessions are reflected at the pharmacy counter, a “narrow exception” included in a 2014 HHS final rule characterized retroactive DIR fees as “price concessions that cannot reasonably be determined at the point of sale.”Critics say the HHS exception has proven to be anything but narrow. Instead, PBMs have increased the use of DIR clawbacks at high rates. HHS even acknowledged in a later proposed rule that “pharmacy price concessions [including retroactive DIR fees] grew more than 45,000% between 2010 and 2017.”View Large Image Figure ViewerDownload Hi-res image Download (PPT)NCPA v Becerra timelineDecember 2003 President George W. Bush signed The Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act, or MMA), the law that created Medicare Part D. The voluntary Part D benefit, administered by federally approved private plans, provided coverage for beneficiaries’ outpatient prescription drugs.The law required Part D plans to “provide enrollees with access to negotiated prices used for payment for [covered drugs].” The law further stated that, “[f]or purposes of [Part D], negotiated prices shall take into account negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations [DIR] for covered part D drugs, and include any dispensing fees for such drugs.” Congress intended that “negotiated price concessions” would include all pharmacy price concessions, without exception. Congress did not authorize retroactive DIR fees.January 2005HHS issued a final rule that included its first regulatory definition of “negotiated prices,” which required “that ‘discounts, direct or indirect subsidies, rebates, other price concessions, and direct or indirect remunerations’ be taken into account in establishing covered Part D drug negotiated prices.” The rule did not authorize retroactive DIR fees.January 2009In another final rule, HHS amended its definition of negotiated prices to refer to the total negotiated amount that network pharmacies receive. According to HHS, this amendment was designed to increase price transparency and ensure “that Part D sponsors base beneficiary cost sharing and price reporting to CMS on the price ultimately received by the pharmacy or other dispensing provider, also known as the pass-through price.” The rule did not authorize retroactive DIR fees.April 2010HHS issues a final rule that reaffirmed its definition of negotiated prices. The rule did not authorize retroactive DIR fees.May 2014HHS issued a final rule that added a narrow exception to its definition of negotiated prices, which were previously required to include all pharmacy price concessions. The “narrow exception” applied to “contingency price concessions that cannot be reasonably determined at point-of-sale [sic].” This created a loophole that PBMs exploited to begin assessing retroactive DIR fees.The final rule stated that HHS declined to prepare a full and thorough small-business analysis “because the Secretary has determined that this final rule will not have a significant impact on a substantial number of small entities.” In other words, HHS failed to consider the loophole’s impact on small pharmacies.September 2014HHS requested comments “with examples of pharmacy price concessions that cannot reasonably be determined or approximated at point-of-sale [sic],” but offered only 2 weeks to respond. Pharmacy organizations warned HHS that the “reasonably determined” exception to the definition of negotiated price was subject to manipulation by Part D sponsors and PBMs. The agency failed to heed these warnings. PBMs increased their use of retroactive DIR fees.May 2016HHS directed Part D sponsors to report as DIR “any reconciliation amount that accounts for differences between the effective rate and the adjudicated rate achieved by the pharmacy at the point-of-sale [sic] and contingent incentive fees…” This guidance (and DIR reporting guidances issued annually thereafter) was contrary to HHS’s established definition of negotiated price: The difference between the effective rate and adjudicated rate is not contingent and can reasonably be determined at the point of sale. By failing to include the determination in its definition of negotiated price, HHS again neglected to close the loophole. Unchecked, PBMs stepped up their use of the practice.November 2017In a proposed rule, HHS conceded that despite its intention that the exception be used narrowly, “we now understand that [it] applies more broadly than we had initially envisioned because of the shift by Part D sponsors and their PBMs towards these types of contingent pharmacy payment arrangements.” As a result, HHS said, “this exception prevents the current policy from having the intended effect on price transparency, consistency, and beneficiary costs.”To address this challenge, HHS advised that it was “considering revising the definition of negotiated price … to remove the reasonably determined exception and to require that all price concessions from pharmacies be reflected in the negotiated price.”Despite recognizing its error, the agency did not close the loophole. PBMs increased their use of retroactive DIR fees.November 2018HHS proposed the elimination of the exception it adopted in May 2014. “When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug,” the agency said in its proposed rule.The proposed rule further acknowledged data that showed pharmacy price concessions had grown by more than 45,000% between 2010 and 2017. Since the point of sale price that Part D plans report to the agency does not account for those discounts, “the negotiated price is rendered less transparent at the individual prescription level and less representative of the actual cost of the drug for the sponsor.”Despite widespread support, HHS failed to finalize the proposal and left the loophole intact. PBMs continued to levy retroactive DIR fees.January 2021NCPA filed a lawsuit against HHS in the U.S. District Court of the District of Columbia. The filing argued that the rule allowing PBMs to extract price concessions after the point of sale violated the language and intent of MMA, among other improprieties.April 2021APhA joined the lawsuit as equal partners with NCPA.May 2021The federal government filed a motion to dismiss the lawsuit, which APhA vowed to challenge.Timeline is current at time of press.In subsequent rulemaking, HHS continued to recognize the error and its unintended consequences but passed up multiple opportunities to correct it. APhA and the lawsuit’s other plaintiffs demand that HHS exercise its authority to stop PBMs from what they characterize as operating without accountability.A ruling that sides with the plaintiffs would move retroactive DIR fees to the point of sale, not eliminate DIR fees altogether. Still, assessing the fees at point of sale would allow Part D patients to benefit from negotiated discounts and give pharmacies reimbursement transparency. APhA, its pharmacy partners, and community pharmacies have long argued that PBMs working with Medicare Part D plan sponsors’ use of retroactive direct and indirect remuneration (DIR) fees cheats beneficiaries, forces pharmacies to close their doors, and endangers access to pharmacist-provided care. After years of unsuccessful attempts to get relief via legislation or regulation, APhA has signed on as an equal partner in a federal lawsuit demanding that HHS end the “deceptive” practice. Who saves and who paysOriginally filed by the National Community Pharmacists Association (NCPA), NCPA v Becerra alleges that a 2014 HHS rule violated the language and congressional intent of the 2003 Medicare Prescription Drug, Improvement, and Modernization Act. “When Congress established Medicare Part D, it would never have approved of a system in which PBMs and Part D plans could squirrel away money that rightly belongs to patients,” APhA said in a statement.PBMs extract retroactive DIR fees from pharmacies weeks or months after they dispense prescriptions to Part D patients. The fees are based on savings that PBM and Part D plans generate by requiring pharmacies in their networks to make price concessions—pharmacies that don’t agree to make these concessions are excluded from plans’ preferred networks.The scheme does not pass the savings on to Part D beneficiaries. Since their prices or copays at the pharmacy counter are based on contracted prices before retroactive DIR is extracted, beneficiaries end up paying higher out-of-pocket costs. Originally filed by the National Community Pharmacists Association (NCPA), NCPA v Becerra alleges that a 2014 HHS rule violated the language and congressional intent of the 2003 Medicare Prescription Drug, Improvement, and Modernization Act. “When Congress established Medicare Part D, it would never have approved of a system in which PBMs and Part D plans could squirrel away money that rightly belongs to patients,” APhA said in a statement. PBMs extract retroactive DIR fees from pharmacies weeks or months after they dispense prescriptions to Part D patients. The fees are based on savings that PBM and Part D plans generate by requiring pharmacies in their networks to make price concessions—pharmacies that don’t agree to make these concessions are excluded from plans’ preferred networks. The scheme does not pass the savings on to Part D beneficiaries. Since their prices or copays at the pharmacy counter are based on contracted prices before retroactive DIR is extracted, beneficiaries end up paying higher out-of-pocket costs. Disproportionate impactFurthermore, the retroactive nature of the fees prevents pharmacy businesses from determining whether they can afford to stay open—and many cannot. An October 2019 JAMA Internal Medicine paper by Qato and colleagues reported that one in eight pharmacies closed between 2009 and 2015.Evidence also shows significant growth in pharmacy deserts across the country. A May 2021 Health Affairs study by Guadamuz and colleagues found that neighborhoods with predominantly Black or Latinx residents are significantly more likely to be affected. In Chicago, for example, 32.6% of Black neighborhoods are pharmacy deserts, compared with 1.2% of white neighborhoods. The COVID-19 pandemic highlighted the danger of this trend. Black communities and other communities of color were much harder hit than their white counterparts, and pharmacies were important access points for COVID-19 services, including testing and vaccinations.Independent pharmacies in rural and underserved areas bear the brunt of the closures, but retroactive DIR fees affect all pharmacies that serve Part D patients. This is an additional harm to older adults and millions of other Americans who need access to local health care providers, plaintiffs say. Furthermore, the retroactive nature of the fees prevents pharmacy businesses from determining whether they can afford to stay open—and many cannot. An October 2019 JAMA Internal Medicine paper by Qato and colleagues reported that one in eight pharmacies closed between 2009 and 2015. Evidence also shows significant growth in pharmacy deserts across the country. A May 2021 Health Affairs study by Guadamuz and colleagues found that neighborhoods with predominantly Black or Latinx residents are significantly more likely to be affected. In Chicago, for example, 32.6% of Black neighborhoods are pharmacy deserts, compared with 1.2% of white neighborhoods. The COVID-19 pandemic highlighted the danger of this trend. Black communities and other communities of color were much harder hit than their white counterparts, and pharmacies were important access points for COVID-19 services, including testing and vaccinations. Independent pharmacies in rural and underserved areas bear the brunt of the closures, but retroactive DIR fees affect all pharmacies that serve Part D patients. This is an additional harm to older adults and millions of other Americans who need access to local health care providers, plaintiffs say. Pandora’s boxWhile other types of PBM-negotiated price concessions are reflected at the pharmacy counter, a “narrow exception” included in a 2014 HHS final rule characterized retroactive DIR fees as “price concessions that cannot reasonably be determined at the point of sale.”Critics say the HHS exception has proven to be anything but narrow. Instead, PBMs have increased the use of DIR clawbacks at high rates. HHS even acknowledged in a later proposed rule that “pharmacy price concessions [including retroactive DIR fees] grew more than 45,000% between 2010 and 2017.”NCPA v Becerra timelineDecember 2003 President George W. Bush signed The Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act, or MMA), the law that created Medicare Part D. The voluntary Part D benefit, administered by federally approved private plans, provided coverage for beneficiaries’ outpatient prescription drugs.The law required Part D plans to “provide enrollees with access to negotiated prices used for payment for [covered drugs].” The law further stated that, “[f]or purposes of [Part D], negotiated prices shall take into account negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations [DIR] for covered part D drugs, and include any dispensing fees for such drugs.” Congress intended that “negotiated price concessions” would include all pharmacy price concessions, without exception. Congress did not authorize retroactive DIR fees.January 2005HHS issued a final rule that included its first regulatory definition of “negotiated prices,” which required “that ‘discounts, direct or indirect subsidies, rebates, other price concessions, and direct or indirect remunerations’ be taken into account in establishing covered Part D drug negotiated prices.” The rule did not authorize retroactive DIR fees.January 2009In another final rule, HHS amended its definition of negotiated prices to refer to the total negotiated amount that network pharmacies receive. According to HHS, this amendment was designed to increase price transparency and ensure “that Part D sponsors base beneficiary cost sharing and price reporting to CMS on the price ultimately received by the pharmacy or other dispensing provider, also known as the pass-through price.” The rule did not authorize retroactive DIR fees.April 2010HHS issues a final rule that reaffirmed its definition of negotiated prices. The rule did not authorize retroactive DIR fees.May 2014HHS issued a final rule that added a narrow exception to its definition of negotiated prices, which were previously required to include all pharmacy price concessions. The “narrow exception” applied to “contingency price concessions that cannot be reasonably determined at point-of-sale [sic].” This created a loophole that PBMs exploited to begin assessing retroactive DIR fees.The final rule stated that HHS declined to prepare a full and thorough small-business analysis “because the Secretary has determined that this final rule will not have a significant impact on a substantial number of small entities.” In other words, HHS failed to consider the loophole’s impact on small pharmacies.September 2014HHS requested comments “with examples of pharmacy price concessions that cannot reasonably be determined or approximated at point-of-sale [sic],” but offered only 2 weeks to respond. Pharmacy organizations warned HHS that the “reasonably determined” exception to the definition of negotiated price was subject to manipulation by Part D sponsors and PBMs. The agency failed to heed these warnings. PBMs increased their use of retroactive DIR fees.May 2016HHS directed Part D sponsors to report as DIR “any reconciliation amount that accounts for differences between the effective rate and the adjudicated rate achieved by the pharmacy at the point-of-sale [sic] and contingent incentive fees…” This guidance (and DIR reporting guidances issued annually thereafter) was contrary to HHS’s established definition of negotiated price: The difference between the effective rate and adjudicated rate is not contingent and can reasonably be determined at the point of sale. By failing to include the determination in its definition of negotiated price, HHS again neglected to close the loophole. Unchecked, PBMs stepped up their use of the practice.November 2017In a proposed rule, HHS conceded that despite its intention that the exception be used narrowly, “we now understand that [it] applies more broadly than we had initially envisioned because of the shift by Part D sponsors and their PBMs towards these types of contingent pharmacy payment arrangements.” As a result, HHS said, “this exception prevents the current policy from having the intended effect on price transparency, consistency, and beneficiary costs.”To address this challenge, HHS advised that it was “considering revising the definition of negotiated price … to remove the reasonably determined exception and to require that all price concessions from pharmacies be reflected in the negotiated price.”Despite recognizing its error, the agency did not close the loophole. PBMs increased their use of retroactive DIR fees.November 2018HHS proposed the elimination of the exception it adopted in May 2014. “When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug,” the agency said in its proposed rule.The proposed rule further acknowledged data that showed pharmacy price concessions had grown by more than 45,000% between 2010 and 2017. Since the point of sale price that Part D plans report to the agency does not account for those discounts, “the negotiated price is rendered less transparent at the individual prescription level and less representative of the actual cost of the drug for the sponsor.”Despite widespread support, HHS failed to finalize the proposal and left the loophole intact. PBMs continued to levy retroactive DIR fees.January 2021NCPA filed a lawsuit against HHS in the U.S. District Court of the District of Columbia. The filing argued that the rule allowing PBMs to extract price concessions after the point of sale violated the language and intent of MMA, among other improprieties.April 2021APhA joined the lawsuit as equal partners with NCPA.May 2021The federal government filed a motion to dismiss the lawsuit, which APhA vowed to challenge.Timeline is current at time of press.In subsequent rulemaking, HHS continued to recognize the error and its unintended consequences but passed up multiple opportunities to correct it. APhA and the lawsuit’s other plaintiffs demand that HHS exercise its authority to stop PBMs from what they characterize as operating without accountability.A ruling that sides with the plaintiffs would move retroactive DIR fees to the point of sale, not eliminate DIR fees altogether. Still, assessing the fees at point of sale would allow Part D patients to benefit from negotiated discounts and give pharmacies reimbursement transparency. While other types of PBM-negotiated price concessions are reflected at the pharmacy counter, a “narrow exception” included in a 2014 HHS final rule characterized retroactive DIR fees as “price concessions that cannot reasonably be determined at the point of sale.” Critics say the HHS exception has proven to be anything but narrow. Instead, PBMs have increased the use of DIR clawbacks at high rates. HHS even acknowledged in a later proposed rule that “pharmacy price concessions [including retroactive DIR fees] grew more than 45,000% between 2010 and 2017.” NCPA v Becerra timelineDecember 2003 President George W. Bush signed The Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act, or MMA), the law that created Medicare Part D. The voluntary Part D benefit, administered by federally approved private plans, provided coverage for beneficiaries’ outpatient prescription drugs.The law required Part D plans to “provide enrollees with access to negotiated prices used for payment for [covered drugs].” The law further stated that, “[f]or purposes of [Part D], negotiated prices shall take into account negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations [DIR] for covered part D drugs, and include any dispensing fees for such drugs.” Congress intended that “negotiated price concessions” would include all pharmacy price concessions, without exception. Congress did not authorize retroactive DIR fees.January 2005HHS issued a final rule that included its first regulatory definition of “negotiated prices,” which required “that ‘discounts, direct or indirect subsidies, rebates, other price concessions, and direct or indirect remunerations’ be taken into account in establishing covered Part D drug negotiated prices.” The rule did not authorize retroactive DIR fees.January 2009In another final rule, HHS amended its definition of negotiated prices to refer to the total negotiated amount that network pharmacies receive. According to HHS, this amendment was designed to increase price transparency and ensure “that Part D sponsors base beneficiary cost sharing and price reporting to CMS on the price ultimately received by the pharmacy or other dispensing provider, also known as the pass-through price.” The rule did not authorize retroactive DIR fees.April 2010HHS issues a final rule that reaffirmed its definition of negotiated prices. The rule did not authorize retroactive DIR fees.May 2014HHS issued a final rule that added a narrow exception to its definition of negotiated prices, which were previously required to include all pharmacy price concessions. The “narrow exception” applied to “contingency price concessions that cannot be reasonably determined at point-of-sale [sic].” This created a loophole that PBMs exploited to begin assessing retroactive DIR fees.The final rule stated that HHS declined to prepare a full and thorough small-business analysis “because the Secretary has determined that this final rule will not have a significant impact on a substantial number of small entities.” In other words, HHS failed to consider the loophole’s impact on small pharmacies.September 2014HHS requested comments “with examples of pharmacy price concessions that cannot reasonably be determined or approximated at point-of-sale [sic],” but offered only 2 weeks to respond. Pharmacy organizations warned HHS that the “reasonably determined” exception to the definition of negotiated price was subject to manipulation by Part D sponsors and PBMs. The agency failed to heed these warnings. PBMs increased their use of retroactive DIR fees.May 2016HHS directed Part D sponsors to report as DIR “any reconciliation amount that accounts for differences between the effective rate and the adjudicated rate achieved by the pharmacy at the point-of-sale [sic] and contingent incentive fees…” This guidance (and DIR reporting guidances issued annually thereafter) was contrary to HHS’s established definition of negotiated price: The difference between the effective rate and adjudicated rate is not contingent and can reasonably be determined at the point of sale. By failing to include the determination in its definition of negotiated price, HHS again neglected to close the loophole. Unchecked, PBMs stepped up their use of the practice.November 2017In a proposed rule, HHS conceded that despite its intention that the exception be used narrowly, “we now understand that [it] applies more broadly than we had initially envisioned because of the shift by Part D sponsors and their PBMs towards these types of contingent pharmacy payment arrangements.” As a result, HHS said, “this exception prevents the current policy from having the intended effect on price transparency, consistency, and beneficiary costs.”To address this challenge, HHS advised that it was “considering revising the definition of negotiated price … to remove the reasonably determined exception and to require that all price concessions from pharmacies be reflected in the negotiated price.”Despite recognizing its error, the agency did not close the loophole. PBMs increased their use of retroactive DIR fees.November 2018HHS proposed the elimination of the exception it adopted in May 2014. “When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug,” the agency said in its proposed rule.The proposed rule further acknowledged data that showed pharmacy price concessions had grown by more than 45,000% between 2010 and 2017. Since the point of sale price that Part D plans report to the agency does not account for those discounts, “the negotiated price is rendered less transparent at the individual prescription level and less representative of the actual cost of the drug for the sponsor.”Despite widespread support, HHS failed to finalize the proposal and left the loophole intact. PBMs continued to levy retroactive DIR fees.January 2021NCPA filed a lawsuit against HHS in the U.S. District Court of the District of Columbia. The filing argued that the rule allowing PBMs to extract price concessions after the point of sale violated the language and intent of MMA, among other improprieties.April 2021APhA joined the lawsuit as equal partners with NCPA.May 2021The federal government filed a motion to dismiss the lawsuit, which APhA vowed to challenge.Timeline is current at time of press. NCPA v Becerra timelineDecember 2003 President George W. Bush signed The Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act, or MMA), the law that created Medicare Part D. The voluntary Part D benefit, administered by federally approved private plans, provided coverage for beneficiaries’ outpatient prescription drugs.The law required Part D plans to “provide enrollees with access to negotiated prices used for payment for [covered drugs].” The law further stated that, “[f]or purposes of [Part D], negotiated prices shall take into account negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations [DIR] for covered part D drugs, and include any dispensing fees for such drugs.” Congress intended that “negotiated price concessions” would include all pharmacy price concessions, without exception. Congress did not authorize retroactive DIR fees.January 2005HHS issued a final rule that included its first regulatory definition of “negotiated prices,” which required “that ‘discounts, direct or indirect subsidies, rebates, other price concessions, and direct or indirect remunerations’ be taken into account in establishing covered Part D drug negotiated prices.” The rule did not authorize retroactive DIR fees.January 2009In another final rule, HHS amended its definition of negotiated prices to refer to the total negotiated amount that network pharmacies receive. According to HHS, this amendment was designed to increase price transparency and ensure “that Part D sponsors base beneficiary cost sharing and price reporting to CMS on the price ultimately received by the pharmacy or other dispensing provider, also known as the pass-through price.” The rule did not authorize retroactive DIR fees.April 2010HHS issues a final rule that reaffirmed its definition of negotiated prices. The rule did not authorize retroactive DIR fees.May 2014HHS issued a final rule that added a narrow exception to its definition of negotiated prices, which were previously required to include all pharmacy price concessions. The “narrow exception” applied to “contingency price concessions that cannot be reasonably determined at point-of-sale [sic].” This created a loophole that PBMs exploited to begin assessing retroactive DIR fees.The final rule stated that HHS declined to prepare a full and thorough small-business analysis “because the Secretary has determined that this final rule will not have a significant impact on a substantial number of small entities.” In other words, HHS failed to consider the loophole’s impact on small pharmacies.September 2014HHS requested comments “with examples of pharmacy price concessions that cannot reasonably be determined or approximated at point-of-sale [sic],” but offered only 2 weeks to respond. Pharmacy organizations warned HHS that the “reasonably determined” exception to the definition of negotiated price was subject to manipulation by Part D sponsors and PBMs. The agency failed to heed these warnings. PBMs increased their use of retroactive DIR fees.May 2016HHS directed Part D sponsors to report as DIR “any reconciliation amount that accounts for differences between the effective rate and the adjudicated rate achieved by the pharmacy at the point-of-sale [sic] and contingent incentive fees…” This guidance (and DIR reporting guidances issued annually thereafter) was contrary to HHS’s established definition of negotiated price: The difference between the effective rate and adjudicated rate is not contingent and can reasonably be determined at the point of sale. By failing to include the determination in its definition of negotiated price, HHS again neglected to close the loophole. Unchecked, PBMs stepped up their use of the practice.November 2017In a proposed rule, HHS conceded that despite its intention that the exception be used narrowly, “we now understand that [it] applies more broadly than we had initially envisioned because of the shift by Part D sponsors and their PBMs towards these types of contingent pharmacy payment arrangements.” As a result, HHS said, “this exception prevents the current policy from having the intended effect on price transparency, consistency, and beneficiary costs.”To address this challenge, HHS advised that it was “considering revising the definition of negotiated price … to remove the reasonably determined exception and to require that all price concessions from pharmacies be reflected in the negotiated price.”Despite recognizing its error, the agency did not close the loophole. PBMs increased their use of retroactive DIR fees.November 2018HHS proposed the elimination of the exception it adopted in May 2014. “When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug,” the agency said in its proposed rule.The proposed rule further acknowledged data that showed pharmacy price concessions had grown by more than 45,000% between 2010 and 2017. Since the point of sale price that Part D plans report to the agency does not account for those discounts, “the negotiated price is rendered less transparent at the individual prescription level and less representative of the actual cost of the drug for the sponsor.”Despite widespread support, HHS failed to finalize the proposal and left the loophole intact. PBMs continued to levy retroactive DIR fees.January 2021NCPA filed a lawsuit against HHS in the U.S. District Court of the District of Columbia. The filing argued that the rule allowing PBMs to extract price concessions after the point of sale violated the language and intent of MMA, among other improprieties.April 2021APhA joined the lawsuit as equal partners with NCPA.May 2021The federal government filed a motion to dismiss the lawsuit, which APhA vowed to challenge.Timeline is current at time of press. NCPA v Becerra timelineDecember 2003 President George W. Bush signed The Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act, or MMA), the law that created Medicare Part D. The voluntary Part D benefit, administered by federally approved private plans, provided coverage for beneficiaries’ outpatient prescription drugs.The law required Part D plans to “provide enrollees with access to negotiated prices used for payment for [covered drugs].” The law further stated that, “[f]or purposes of [Part D], negotiated prices shall take into account negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations [DIR] for covered part D drugs, and include any dispensing fees for such drugs.” Congress intended that “negotiated price concessions” would include all pharmacy price concessions, without exception. Congress did not authorize retroactive DIR fees. December 2003 President George W. Bush signed The Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act, or MMA), the law that created Medicare Part D. The voluntary Part D benefit, administered by federally approved private plans, provided coverage for beneficiaries’ outpatient prescription drugs. The law required Part D plans to “provide enrollees with access to negotiated prices used for payment for [covered drugs].” The law further stated that, “[f]or purposes of [Part D], negotiated prices shall take into account negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations [DIR] for covered part D drugs, and include any dispensing fees for such drugs.” Congress intended that “negotiated price concessions” would include all pharmacy price concessions, without exception. Congress did not authorize retroactive DIR fees. January 2005HHS issued a final rule that included its first regulatory definition of “negotiated prices,” which required “that ‘discounts, direct or indirect subsidies, rebates, other price concessions, and direct or indirect remunerations’ be taken into account in establishing covered Part D drug negotiated prices.” The rule did not authorize retroactive DIR fees. HHS issued a final rule that included its first regulatory definition of “negotiated prices,” which required “that ‘discounts, direct or indirect subsidies, rebates, other price concessions, and direct or indirect remunerations’ be taken into account in establishing covered Part D drug negotiated prices.” The rule did not authorize retroactive DIR fees. January 2009In another final rule, HHS amended its definition of negotiated prices to refer to the total negotiated amount that network pharmacies receive. According to HHS, this amendment was designed to increase price transparency and ensure “that Part D sponsors base beneficiary cost sharing and price reporting to CMS on the price ultimately received by the pharmacy or other dispensing provider, also known as the pass-through price.” The rule did not authorize retroactive DIR fees. In another final rule, HHS amended its definition of negotiated prices to refer to the total negotiated amount that network pharmacies receive. According to HHS, this amendment was designed to increase price transparency and ensure “that Part D sponsors base beneficiary cost sharing and price reporting to CMS on the price ultimately received by the pharmacy or other dispensing provider, also known as the pass-through price.” The rule did not authorize retroactive DIR fees. April 2010HHS issues a final rule that reaffirmed its definition of negotiated prices. The rule did not authorize retroactive DIR fees. HHS issues a final rule that reaffirmed its definition of negotiated prices. The rule did not authorize retroactive DIR fees. May 2014HHS issued a final rule that added a narrow exception to its definition of negotiated prices, which were previously required to include all pharmacy price concessions. The “narrow exception” applied to “contingency price concessions that cannot be reasonably determined at point-of-sale [sic].” This created a loophole that PBMs exploited to begin assessing retroactive DIR fees.The final rule stated that HHS declined to prepare a full and thorough small-business analysis “because the Secretary has determined that this final rule will not have a significant impact on a substantial number of small entities.” In other words, HHS failed to consider the loophole’s impact on small pharmacies. HHS issued a final rule that added a narrow exception to its definition of negotiated prices, which were previously required to include all pharmacy price concessions. The “narrow exception” applied to “contingency price concessions that cannot be reasonably determined at point-of-sale [sic].” This created a loophole that PBMs exploited to begin assessing retroactive DIR fees. The final rule stated that HHS declined to prepare a full and thorough small-business analysis “because the Secretary has determined that this final rule will not have a significant impact on a substantial number of small entities.” In other words, HHS failed to consider the loophole’s impact on small pharmacies. September 2014HHS requested comments “with examples of pharmacy price concessions that cannot reasonably be determined or approximated at point-of-sale [sic],” but offered only 2 weeks to respond. Pharmacy organizations warned HHS that the “reasonably determined” exception to the definition of negotiated price was subject to manipulation by Part D sponsors and PBMs. The agency failed to heed these warnings. PBMs increased their use of retroactive DIR fees. HHS requested comments “with examples of pharmacy price concessions that cannot reasonably be determined or approximated at point-of-sale [sic],” but offered only 2 weeks to respond. Pharmacy organizations warned HHS that the “reasonably determined” exception to the definition of negotiated price was subject to manipulation by Part D sponsors and PBMs. The agency failed to heed these warnings. PBMs increased their use of retroactive DIR fees. May 2016HHS directed Part D sponsors to report as DIR “any reconciliation amount that accounts for differences between the effective rate and the adjudicated rate achieved by the pharmacy at the point-of-sale [sic] and contingent incentive fees…” This guidance (and DIR reporting guidances issued annually thereafter) was contrary to HHS’s established definition of negotiated price: The difference between the effective rate and adjudicated rate is not contingent and can reasonably be determined at the point of sale. By failing to include the determination in its definition of negotiated price, HHS again neglected to close the loophole. Unchecked, PBMs stepped up their use of the practice. HHS directed Part D sponsors to report as DIR “any reconciliation amount that accounts for differences between the effective rate and the adjudicated rate achieved by the pharmacy at the point-of-sale [sic] and contingent incentive fees…” This guidance (and DIR reporting guidances issued annually thereafter) was contrary to HHS’s established definition of negotiated price: The difference between the effective rate and adjudicated rate is not contingent and can reasonably be determined at the point of sale. By failing to include the determination in its definition of negotiated price, HHS again neglected to close the loophole. Unchecked, PBMs stepped up their use of the practice. November 2017In a proposed rule, HHS conceded that despite its intention that the exception be used narrowly, “we now understand that [it] applies more broadly than we had initially envisioned because of the shift by Part D sponsors and their PBMs towards these types of contingent pharmacy payment arrangements.” As a result, HHS said, “this exception prevents the current policy from having the intended effect on price transparency, consistency, and beneficiary costs.”To address this challenge, HHS advised that it was “considering revising the definition of negotiated price … to remove the reasonably determined exception and to require that all price concessions from pharmacies be reflected in the negotiated price.”Despite recognizing its error, the agency did not close the loophole. PBMs increased their use of retroactive DIR fees. In a proposed rule, HHS conceded that despite its intention that the exception be used narrowly, “we now understand that [it] applies more broadly than we had initially envisioned because of the shift by Part D sponsors and their PBMs towards these types of contingent pharmacy payment arrangements.” As a result, HHS said, “this exception prevents the current policy from having the intended effect on price transparency, consistency, and beneficiary costs.” To address this challenge, HHS advised that it was “considering revising the definition of negotiated price … to remove the reasonably determined exception and to require that all price concessions from pharmacies be reflected in the negotiated price.” Despite recognizing its error, the agency did not close the loophole. PBMs increased their use of retroactive DIR fees. November 2018HHS proposed the elimination of the exception it adopted in May 2014. “When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug,” the agency said in its proposed rule.The proposed rule further acknowledged data that showed pharmacy price concessions had grown by more than 45,000% between 2010 and 2017. Since the point of sale price that Part D plans report to the agency does not account for those discounts, “the negotiated price is rendered less transparent at the individual prescription level and less representative of the actual cost of the drug for the sponsor.”Despite widespread support, HHS failed to finalize the proposal and left the loophole intact. PBMs continued to levy retroactive DIR fees. HHS proposed the elimination of the exception it adopted in May 2014. “When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug,” the agency said in its proposed rule. The proposed rule further acknowledged data that showed pharmacy price concessions had grown by more than 45,000% between 2010 and 2017. Since the point of sale price that Part D plans report to the agency does not account for those discounts, “the negotiated price is rendered less transparent at the individual prescription level and less representative of the actual cost of the drug for the sponsor.” Despite widespread support, HHS failed to finalize the proposal and left the loophole intact. PBMs continued to levy retroactive DIR fees. January 2021NCPA filed a lawsuit against HHS in the U.S. District Court of the District of Columbia. The filing argued that the rule allowing PBMs to extract price concessions after the point of sale violated the language and intent of MMA, among other improprieties. NCPA filed a lawsuit against HHS in the U.S. District Court of the District of Columbia. The filing argued that the rule allowing PBMs to extract price concessions after the point of sale violated the language and intent of MMA, among other improprieties. April 2021APhA joined the lawsuit as equal partners with NCPA. APhA joined the lawsuit as equal partners with NCPA. May 2021The federal government filed a motion to dismiss the lawsuit, which APhA vowed to challenge.Timeline is current at time of press. The federal government filed a motion to dismiss the lawsuit, which APhA vowed to challenge. Timeline is current at time of press. In subsequent rulemaking, HHS continued to recognize the error and its unintended consequences but passed up multiple opportunities to correct it. APhA and the lawsuit’s other plaintiffs demand that HHS exercise its authority to stop PBMs from what they characterize as operating without accountability. A ruling that sides with the plaintiffs would move retroactive DIR fees to the point of sale, not eliminate DIR fees altogether. Still, assessing the fees at point of sale would allow Part D patients to benefit from negotiated discounts and give pharmacies reimbursement transparency.
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Jul 1, 2023
John Jackson 
Open Access