What Covered Entities Should Know About New DIR Fee Rules for Pharmacies

Some covered entities may not be aware of it, but there’s a big change starting next year for retail pharmacies that could also affect their own 340B benefits.

The Centers for Medicare and Medicaid Services (CMS) issued a final rule last year prohibiting the use of retroactive direct and indirect remuneration, or DIR, fees in pharmacies that participate in Medicare Part D networks. The new rule takes effect Jan. 1, 2024.

DIR fees are assessed by pharmacy benefit managers (PBMs) or Part D plans on participating pharmacies based on performance metrics and other factors that critics say are not well understood. Originally intended as a way for CMS to know the true cost of dispensed drugs and manufacturer rebates, DIR fees have become a prime source of profit for PBMs and a major point of contention.

Pharmacists often refer to DIR fees as “clawbacks” because they’re often charged months after a drug is dispensed — meaning pharmacies frequently don’t know their true reimbursement amount until long after the point of sale to a patient. This complicates pharmacies’ efforts to manage cash flow, predict revenue, and know whether reimbursement covers their costs. 

The use of DIR fees has exploded. CMS says pharmacies’ concessions from DIR fees have grown by a whopping 107,400% between 2010 and 2020. They’re often cited as a major factor behind a wave of independent pharmacy closures.

“Pharmacy DIR was intended as a payment or fee adjustment after the point-of-sale, with the amount calculated according to pharmacy performance metrics,” the National Association of Chain Drug Stores wrote in comments submitted to CMS, “but instead, PBMs have exploited DIR to create a loophole in the Medicare regulation allowing them now to dictate pharmacies’ reimbursement based on factors unknown or opaque to pharmacies.” 

What’s Changing

In eliminating the use of retrospective DIR fees, the new rule will require them to be reflected in the price the patient pays at the pharmacy, and it limits the types of fees that can be charged. In addition: 

• DIR fees will be based on the actual transaction price of the drug rather than the list price, so pharmacies will be paid based on the price they paid for the drug rather than what was listed on the invoice.
• CMS requires that if various fees are deducted from payments made to pharmacies for purchases of Part D drugs, they are considered “price concessions” and must be reflected in the negotiated price at the point of sale.
• CMS will also require Part D plans and PBMs to report more detailed information about their DIR fees, including the amounts and reasons for the charges.

The rule intended to increase transparency and introduce more predictability in pharmacy revenue and cash flow. But there will still be challenges for pharmacies, many of whom want to see DIR fees eliminated outright.

For the early part of 2024, pharmacies will still be paying retrospective DIR fees from the previous year on top of the new DIR fees at the point of sale, which will be challenging from a cash flow perspective. Requiring DIR fees upfront will mean lower pharmacy reimbursements from Part D plans.

With those rate adjustments, both covered entities and their contracted pharmacies can expect reductions in their 340B savings. DIR fees will continue to be a thorn in the side of both pharmacies and third-party administrator vendors, which typically don’t account for them in their software.

For covered entities, the change means it’s an opportune time to look for other ways to increase 340B benefits, like capturing referral prescriptions. Or even acquiring an independent pharmacy to add revenue and get around some of the manufacturer restrictions.

If you’d like to talk more about what this change means for your organization, get in touch with us today.