Over the years, DIR fees have become a constant feature of almost every pharmacy network contract. According to Drug Channels, DIR fees accounted for an estimated 18 percent of total Medicare Part D rebates in 2019. Most pharmacy owners and operators are likely familiar with DIR fees, considering how pervasive they are. For the uninitiated, the Centers for Medicare and Medicaid Services (CMS) refers to DIR fees as “fees, payments, or payment adjustments made after the point-of-sale.”
CMS adds that DIR fees are based on payment arrangements negotiated between entities involved in the administration of the Medicare Part D benefit and other stakeholders. Key stakeholders include Medicare Part D sponsors, PBMs, PSAOs, and drug manufacturers, to name a few. Undoubtedly, DIR fees have an impact on a pharmacy’s bottom line. This makes it important for a pharmacy owner or operator to understand a PSAO’s approach to DIR fees. Below are three questions to ask.
- What impact does fee structure have on the DIR fee amount assessed and what specific strategy does the PSAO employ to mitigate this impact on a pharmacy’s bottom line?
- What tools and resources does the PSAO offer to help track, report, and plan for DIR fees?
- In what way does the PSAO set the stage for lower DIR fees?
Here’s some information to help set some expectations on the three areas highlighted in the questions above.
DIR fees are typically structured as a flat-rate or percentage-based fee. The flat-rate fee can be viewed as a chargeback of a fixed dollar amount per claim. DIR fee structure interacts with other factors such as medication mix, ratio of generic medications dispensed, and quality benchmarks to impact the bottom line. For instance, a percentage-based DIR fee structure can have a disproportionately negative impact on the bottom line of a pharmacy with a patient roster that includes patients on a regimen of high-cost brand name or specialty medications.
On the other hand, a percentage-based fee structure can produce a higher profit margin for a pharmacy where mostly generic medications are dispensed. Whether flat-rate or percentage-based, many PBMs calculate DIR fees based on performance metrics. A pharmacy owner or operator who focuses on these performance metrics can succeed at lowering DIR fees. Partnering with a PSAO that pursues a performance strategy, which combines education on performance-based programs with data-driven solutions can add immense value.
Tracking, Reporting, and Planning
Data-driven solutions that empower pharmacy owners or operators with actionable insight are an important aspect of an effective performance strategy. To help track, report, and plan for DIR fees, many PSAOs offer a DIR Fee Summary Report that details the total amount of DIR fees paid to date. For a more comprehensive picture, a DIR Fee Estimator provides estimations of future DIR fees to be paid within a specific time frame with corresponding details for a health plan or PBM.
Other essential performance-related resources to inquire about are: a) a dedicated team of quality performance experts; b) store-level access to the EQuIPP® platform; and c) a program designed to identify opportunities for proactively enhancing patient adherence to medications. Weighting and thresholds for quality metrics change from year to year; therefore, an easily accessible and up-to-date list of quality-based programs is useful to have for reference. Another helpful tool is a summary that outlines each PBM’s quality- and non-quality-based metrics, DIR fee structure, mode of calculation, and payment timeline, and also highlights whether or not a “true up” is due at year end.
Setting the Stage
At the core of a PSAO’s function is contract negotiation. As a strategic partner to owners and operators of independent community retail pharmacies, the right PSAO will monitor DIR fees and utilize data analytics in the contract negotiation process to advocate for favorable terms on behalf of pharmacies. Setting the stage for favorable terms is only one step. Continuous analysis of each DIR fee report to verify accuracy and diligently working with PBMs to resolve any discrepancies identified will go a long way to help protect a pharmacy’s bottom line.
Centers for Medicare & Medicaid Services. (2017, January 19). Medicare Part D—Direct and Indirect Remuneration (DIR). https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-direct-and-indirect-remuneration-dir
Fein, A. (2020, February 13). Pharmacy DIR fees hit a record $9 billion in 2019—that’s 18% of total Medicare Part D rebates. Drug Channels. https://www.drugchannels.net/2020/02/pharmacy-dir-fees-hit-record-9-billion.html