What are Direct and Indirect Remuneration (DIR) Fees?

DIR, or direct and indirect remuneration fees, is a term used to refer to the compensation that Medicare Part D sponsors or PBMs (Pharmacy Benefit Managers) receive after the point of sale. While initially, DIR only related to Medicare Part D, in recent years they have begun to relate to commercial plans too.

The CMS

The CMS (Centers for Medicare and Medicaid Services) introduced DIR fees at the time of implementation of Medicare Part D. PBMs and plans must report to the CMS annually with their amount of DIR fees. The CMS said that the reports should capture the rebates to PBMs from the pharmaceutical manufacturers that were supplied for remuneration purposes including formulary positioning.

It was the intention that the fees would give pharmacies an incentive by offering rebates, discounts, upfront payments, coupons, and other similar price concessions, but lately, they have been increasingly scrutinized for their year-on-year increases and ambiguity.

Paying To Participate

In many circles, DIR fees are seen as a fee levied on pharmacies to participate in the network. The fee is imposed by PBMs some considerable time after the original point of sale, and this can cause pharmacies to lose money when dispensing prescriptions. These fees can be imposed later since PBMs affirm that they are for quality fulfilment measures which are unable to be established at the time of sale.

Reconciling Payments and Performance Metrics

Payment reconciliation is a term used to describe DIR fees which are assessed as ways of truing-up targeted reimbursement rates. Generally, these are imposed in a regular reconciliation process which may take place annually or quarterly. DIR fees may be associated with the way in which any given pharmacy performs regarding a specific measure.

So, for example, error rates, preferred or generic product rates, refill rates, quality measures, and audit performance can all be linked to a reduction in reimbursement. While those performance metrics should, in theory, also equate to bonus payments for a pharmacy, in practice this rarely, if ever, occurs.

The Clawback Problem

When DIR fees are assessed by the PBM, the money is then taken back from the pharmacies long after the point of sale in a “clawback” move. The major problem with this is that those fees often create negative reimbursements for the drugs that have already been dispensed, thus leaving pharmacies and patients alike having to fund the difference.

It isn’t surprising that many independent pharmacies are worried that the clawback practice and, indeed, DIR fees in general, are unsustainable and are preventing them from competing with bigger, corporate chains.

The Impact on Patients

Not only are independent pharmacies feeling the negative impact of DIR fees, but patients are suffering too. The cost of prescription drugs determines the price that a patient pays, but the price of the drug used by PBMs is given without taking off the DIR fees first which inflates the drug’s actual cost.

As a result, patients must pay a higher cost out of pocket for their prescription medication, and when patients are asked to pay more for their drugs, the effect is typically poor adherence to their medication protocol and, eventually, an ongoing health decline. Furthermore, it often increases a patient’s use of retroactive care and emergency services.

The Future of DIR Fees

Recently, a proposed rule was announced by the Biden Administration to reform key elements of DIR fees. March 2022 saw healthcare entities and companies, and over 200 patient advocates sending letters to call for the rule to be finalized. Independent pharmacy owners nationwide together with their patients are hoping that this long-overdue reform will soon be passed.

Find out more about how RxMile helps keep independent pharmacies delivery service cost-effective, compliant, and in control. The team can also demonstrate how easy it is to start a medication courier company with your pharmacy or via a carefully selected third party. We have also created an indepth guide illustrating how to start an independent pharmacy. Why not check it out too?