You already know that direct and indirect remuneration (DIR) fees are affecting your independent community pharmacy business. But do you know how much?
DIR fees refer to a variety of fees that pharmacy benefit managers (PBMs) and plan sponsors extract from independent community pharmacies participating in Medicare Part D.
These fees can include “pay-to-play” fees to participate in preferred pharmacy networks, reimbursement reconciliation fees and fees based on compliance with performance metrics, among others.
DIR fees often leave pharmacies with a much smaller margin than initially expected, and sometimes pharmacies even end up dispensing at a loss.
What’s problematic is that DIR fees make it difficult to assess your pharmacy’s actual reimbursement rate. Rather than taking the fees out of each claim, some PBMs and plan sponsors conduct periodic reconciliations (usually every few months but sometimes yearly,) and charge pharmacies for the difference a few months later.
Currently, the National Community Pharmacists Association (NCPA) is urging the Centers for Medicare & Medicaid Services (CMS) to finalize the proposed policy guidance that outlines how PBMs and plan sponsors should fairly and transparently address DIR fees. This guidance would require PBMs and plan sponsors to report DIR fees during the claim adjudication process, bringing clarity to pharmacies on their actual reimbursement rates.
Here are five things you need to know about how DIR fees affect your independent community pharmacy.
1. PBMs take DIR fees out of reimbursement
DIR fees are extracted from the reimbursement that the pharmacy should receive based on the contractual agreement with PBMs and plan sponsors. Months after the pharmacy receives the rebate, it’s charged the DIR fee, which results in the pharmacy receiving a lower rebate.
2. Most DIR fees aren’t taken at the point-of-sale (POS)
The majority of DIR fees aren’t taken out of each claim, but rather the PBM or plan sponsor will conduct reconciliations—usually quarterly—and then charge pharmacies for the difference a few months later. (Some PBMs conduct reconciliations yearly.)
This time gap makes it difficult for pharmacies to assess what the actual reimbursement rate will be at the beginning of the contract, at the time of dispensing and at the end of the contractual term.
However, some DIR fees are known to both parties at the POS. For example, pay-to-play fees are known because they’re the agreed upon rate the pharmacy is charged to participate in a preferred network.
3. DIR fees can be flat fees or percentage fees
DIR fees can be a flat amount, such as $3. Or, the fee can be a percentage. For example, the fee could be three percent of the full cost of each drug.
4. DIR fees can be based on your pharmacy’s performance
Your pharmacy’s performance on certain factors, such as generic dispensing rates, could be tied to a “fee” or reimbursement reduction. If your performance metrics are high, they could potentially offset another fee or lessen the DIR fees.
These measures depend on your PBM and plan, but can also include refill rates, preferred product rate, audit performance and error rates, Medicare Star Ratings and other quality measures in comparison to other pharmacies in network.
5. Calculation and collection periods
To stay on top of DIR fees, you need to do your homework.
Evaluate your contracts if you contract independently. If you have a pharmacy services administration organization (PSAO), reach out to your PSAO to explain the parameters of your contractual terms. Read updates provided by your PSAO, ask questions when you need clarification and make sure you’re aware of—and understand—the different terms and conditions contained in your contract, including in provider manuals.
Pay attention to the timeline of measurement for when your pharmacy’s performance measures will be examined and calculated. Be sure to know when the DIR fees will be calculated and collected, so that you can be prepared.
Read more about the rise of DIR fees.
