Response to XIL Consulting’s “Payers and PBMs Profit from Obscure Pharmacy Fees, While Seniors See No Relief in Prescription Costs”

A recent blog (“Payers and PBMs Profit from Obscure Pharmacy Fees, While Seniors See No Relief in Prescription Costs”) suggests performance-based price concessions are retained by PBMs, restrict the growth of independent pharmacies, and inflate Medicare Part D enrollee’s out-of-pocket costs—unfounded suggestions that evidence does not support.[1]

  • Performance-based Pharmacy Reimbursement Saves Taxpayer Dollars and Helps Lower Costs for Medicare Part D Enrollees. Pharmacy performance-based price concessions (often referred to as “pharmacy Direct and Indirect Remuneration (DIR)”) are required to be reported to the Centers for Medicare & Medicaid Services (CMS), are subtracted from Medicare Part D plan payments, and must be used to reduce enrollee out-of-pocket costs through lower premiums.[2] Several independent government reports have pointed to pharmacy DIR as a reason that Part D net spending growth has remained flat.[3],[4],[5]
  • PBMs Are Committed to Paying for Value and Ensuring Quality for Medicare Part D Enrollees. PBMs and Part D plan sponsors use pharmacy DIR to create high-quality pharmacy networks, improve enrollee health outcomes through increased adherence, promote other patient-centric outcomes, and reduce out-of-pocket costs through lower premiums. PBMs, working on behalf of Medicare Part D plan sponsors, may enter into value-based network agreements with pharmacies where PBMs either pay bonuses (“incentive payments”) to, or collect overpaid monies (“price concessions”) from, a pharmacy based on their performance.[6]
  • Pharmacy DIR Promotes Value-Based Contracting for Pharmacies. All stakeholders need to be accountable for helping Medicare Part D enrollees access safe and affordable prescription drugs while keeping their out-of-pocket costs, including premiums, at a minimum. Through value-based network contracting, PBMs and Part D plans reward high-performing pharmacies and promote quality access for enrollees.
    • For the 2020 Medicare Part D Star Ratings, plan ratings include five Pharmacy Quality Alliance measures, including measures relating to medication adherence and medication therapy management program completion.[7] Benchmarks for pharmacy DIR often reflect Star Ratings and other value-based, patient-centric quality measures, such as a specified percent of prescriptions dispensed for a generic drug (instead of a costlier brand-name drug), provision of counseling services, and opioid dispensing oversight.
    • Because pharmacies are paid the contractual amount for the ingredient cost and the dispensing fee at the point of service, such performance-based reimbursement adjustments—whether a bonus or a concession—are retrospectively reconciled based on pharmacies’ actual performance on the agreed-upon, value-based benchmarks.
    • For plan year 2020, 92% of Part D enrollees chose Part D plans with preferred pharmacy networks—an increase from 88% in 2019.[8] In a survey, 85% of older Americans reported satisfaction with their preferred network Part D plan, and nearly 80% said they would be disappointed if their plan was eliminated.[9]
  • Pharmacy Pay-for-Performance is an Important Part of the Transition to Value-based Care. Pharmacy pay-for-performance is part of the overall national strategy to transition to value-based health care. Pharmacy DIR are a nominal portion—2.6%—of total Part D plan payments to pharmacies in 2017, which is well within a reasonable at-risk amount for pay-for-performance strategies.[10] PBMs and plans, as well as most other providers, also are held to pay-for-performance standards, including Medicare Star Ratings.[11]
  • The Blog Takes Pharmacy DIR Numbers Wholly Out of Context. While $4 billion in pharmacy DIR in 2017 may seem like a lot, that number is based off the scale of Medicare Part D—a $146-plus billion program serving more than 40 million enrollees in that same year. Again, pharmacy DIR represented less than 2.6% of pharmacy claims costs.
  • The Presence of Pharmacy DIR in Medicare Part D is not Restricting the Growth of Independent Pharmacies. Between 2010 and 2017, the number of independent pharmacies nationwide increased by 2,562 (a 13% increase).

[1] Susan L. Lang. XIL Consulting. Payers and PBMs Profit from Obscure Pharmacy Fees, While Seniors See No Relief in Prescription Costs. February 11, 2020.

[2] Centers for Medicare & Medicaid Services. Medicare Part D – Direct and Indirect Remuneration (DIR). January 19, 2017. 2.html.

[3] Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 2019 Annual Report of the Boards of Trustees. April 22, 2019.

[4] Health and Human Services Office of Inspector General. Rebates for Brand Name Drugs in Part D Substantially Reduced the Growth in Spending from 2011 to 2015. Report OEI-03-19-00010. September 13, 2019.

[5] GAO. Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Managed Drug Expenditures and Utilization. July 2019.

[6] In such cases, the bonus paid to pharmacies is considered an incentive payment and monies received from pharmacies by plan sponsors, or PBMs on their behalf, is considered a price concession.

[7] Pharmacy Quality Alliance. PQA Measures Use in CMS’ Part D Quality Programs: Medicare Part D Star Ratings.

[8] Drug Channels. New Part D Enrollment Data for 2020 Preferred Pharmacy Networks: CVS Holds Steady, Walmart Rebounds, and Walgreens Tanks. February 4, 2020.

[9] Hart Research Associates. A Survey of Seniors About Their Medicare Part D Preferred Pharmacy Network Plan. May 2013.

[10] For 2016 data, see Government Accountability Office (GAO). Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization. July 2019.”

[11] McKinsey & Company, “The seven characteristics of successful alternative payment models,” available online at; CMS, “Advanced Alternative Payment Models (APMs),” available online at