DIR Fee Reform Will Have Repercussions in 2024, But Pharmacists Can Prepare

The Centers for Medicare and Medicaid Services (CMS) is revising its Medicare Part D plan to now require that plan sponsors include all pharmacy direct and indirect remuneration (DIR) fees (also called price concessions) at point-of-sale (POS); in other words, CMS plans to remove retroactive DIR fees, which are often billed more than 6 months after a purchase.¹

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The new rule goes into effect on January 1, 2024, but pharmacists should brace themselves for high DIR fees and low POS reimbursement during the transition period—the first half of 2024— according to expert Crystal Lennartz, vice president and general manager, Health Mart Atlas & Atlas Specialty, who updated independent pharmacists of these imminent changes during a session at McKesson ideaShare 2023 in Las Vegas, Nevada.²

“It's anticipated that how [plan sponsors] are going to handle data is that any[thing] from the midpoint to the full DIR is going to be built into those POS rates come 2024,” Lennartz said during the session.

DIR is a regulatory loophole that allows a patient with a Medicare Part D plan to earn back money from a drug purchase via a pharmacy benefit manager (PBM).³

“The PBM receives additional compensation after the POS that serves to change the final cost of the drug for the payer,” True North Political Solutions said in a statement.

DIR includes discounts, chargebacks, rebates, upfront payments, grants, or other price concessions. These “clawbacks,” which consist of a percentage of the total cost of a prescription, are supposed to reduce the cost of a prescription set by Medicare.

In theory, payers can take back money from every purchase made at POS based on the pharmacy’s performance, as assessed by a PBM.¹ PBMs posit that DIR fees incentivize good performance—better performance would mean lower DIR fees— but performance is an inconsistent measure for how much the pharmacist improved patient outcomes.⁴

Further, some PBMs have taken advantage of this system, critics say. They evaluate DIR fees after scoring the pharmacy for performance in a way that does not affect their scores.⁴

DIR fees end up hurting pharmacies because pharmacists, who now owe money back to the patient, are billed long after the patient made a purchase. In effect, the pharmacy ends up losing lots of money when processing these Medicare Part D claims.

The update should be considered a win for patients with CMS Medicare or Medicaid who, under current regulation, also pay an inflated price for a prescription drug. This is because DIR fees are often calculated into POS cost, inflating the price.¹ In 2024, patients will have lower co-pays up front because they will not need to be reimbursed for DIR fees after a purchase.

Pharmacists will also benefit from increased drug cost transparency, Lennartz explained. Under the new rule, pharmacists can negotiate the price of a drug with a patient upfront, and the DIR fees will now be reflected in this negotiation.²

However, the updated guidelines are likely will impact 2024 cash-flows, particularly during the first 5 months of 2024, Lennartz said. During early 2024, pharmacists will have to pay their 2023 DIR payments. Simultaneously, CMS will pay pharmacists less money for drugs, she added.

The reason there will be a low POS reimbursement is because starting 2024, the DIR fee will no longer inflate the cost of drugs at POS. Although this is good news in the long-term, pharmacists may make less money while paying more in retroactive fees.

“What [pharmacists] need to do to prepare is to really understand your pharmacy-specific cash flow implications, and how you might want to set aside or free up cash flow to mind this gap,” Lennartz said.

Lennartz noted specifically that CVS Caremark and Prime Therapeutics will be collecting large dollar amounts. Come January 2024, Caremark will collect DIR fees from May through August 2023 and in March 2024, Caremark will start collecting fees from claim activity from September to December 2023, Lennartz said. They will collect these trimester 3 claims until May 2024.

Prime will collect DIR fees based on Q3 claims activity in January 2024 and will collect fees from Q4 in April 2024 only, Lennartz said. She suggests setting aside funds to meet 2023 DIR obligations between June and December 2023. If a pharmacist does not want to or is unable to set aside these funds, a pharmacist can alternatively start a business high interest savings account.

Programs such as Health Mart Atlas’s voluntary DIR Assist were created to help pharmacists set aside funds via Central Pay Funds, and Pinpoint Community Solutions can help pharmacists lower inventory costs, Lennartz said.

“I strongly encourage pharmacists to take the step to protect your pharmacy against these cash flow challenges that are coming,” she concluded.

References

1. NACDS. DIR Fees. 2023. Accessed on July 13, 2023. nacds.org/dir-fees/
2. Lennartz C. Health Mart. General Session: DIR Fees Session. McKesson ideaShare. June 21 to 24. Las Vegas, Nevada. https://mckessonideashare.com/
3. White Paper: DIR Fees Simply Explained. True North Political Solutions. October 25, 2017. Accessed on July 17, 2023. pharmacytimes.com/view/white-paper-dir-fees-simply-explained
4. Barbarito A, Bennet S. What Are DIR Fees & Clawbacks? News Release. June 1, 2022. Accessed on July 13, 2023. https://www.frierlevitt.com/articles/what-are-dir-fees-and-clawbacks/
5. Cathers M. CMS eliminates retroactive DIR fees. APhA. May 3, 2022. Accessed on July 17, 2023. https://www.pharmacist.com/Pharmacy-News/cms-eliminates-retroactive-dir-fees