What are DIR Fees and why do they Matter?

Oct 10, 2016DIR Fees, Independent Pharmacy Insights

As we all know, one of the top challenges every small business faces is managing cash flow (1). After all, unpredictable cash flow can throw a wrench into an organization’s ability to pay utilities, staff, and vendors. Financial obligations won’t wait for a slow paying client. But what about a client that pays on time, only to deduct a portion of a previous payment from a current bill? This type of action can skew any company’s financial picture. And, this is exactly the type of issue many independent, community based pharmacies are experiencing through Medicare Part D Pharmacy “DIR” fees.

What is a DIR Fee?

The term “DIR” stands for “direct and indirect remuneration” and was originally coined by the Centers for Medicare and Medicaid Services (CMS) as a way to address price concessions such as drug manufacturer rebates. For a pharmacy, this term is more commonly thought to represent a negotiated amount between Medicare Part D Plans, Pharmacy Benefit Managers (PBMs), and the pharmacy itself, however, this belief is mostly inaccurate (2). The term “DIR Fee,” however, is a term used by Plans/PBMs to categorize certain participation fees and the reconciliation of agreed upon contractual terms with actual reimbursement. DIR Fees have come to encompass several different fees assessed including:

  • “Pay to play” fees or a fee to participate in a “preferred” pharmacy network.
  • Price difference between the agreed upon reimbursement rate and another variable contractual metric.
  • A fee based on compliance with a contractually imposed performance metric; more often, performance offsets another fee. (3)

How do DIR Fees affect a Pharmacy?

The majority of DIR Fees are realized when a reconciliation between contract terms and actual reimbursement is undertaken. These reconciliations are generally performed every few months. Because of this lag between payment and reconciliation, some member pharmacies are being charged back for differences between the actual reimbursement rates and contracted terms. This makes it very difficult for independent or community pharmacies to know what kind of cash flow to depend on in any given month.

This lag has also raised concern at CMS that the way these fees are handled may incorrectly cause preferred pharmacy prices to appear lower than they actually are (2).

What can a Pharmacy do to manage these Fees?

About the only thing a pharmacy owner can do to manage these fees is to ensure they have a strong understanding of all the intricacies surrounding their contract terms and conditions, including a solid knowledge of any pharmacy manuals that may be incorporated into a contract (2).

If you are an independent pharmacy owner, or manager, you already know what it’s like when faced with challenges that derail your ability to run a successful business. The more prepared you are – through knowledge, education, and available resources – the easier it will be to anticipate, and meet, those challenges, and maintain a more competitive edge in your market.

Need to know more about the ins and outs of DIR Fees and contract metrics? Talk to us. We can help.

1. http://www.inc.com/anna-johansson/the-7-biggest-challenges-that-small- business-owners-face-in-2016.html
2. http://www.ncpa.co/pdf/faq-direct-indirect-remuneration-fees.pdf
3. http://www.ncpa.co/pdf/dir-one-pager-2016.pdf