Direct and indirect remuneration, or DIR, fees play a significant role in the profitability of a pharmacy. With a failing to implement DIR reform, pharmacies can expect DIR fees to continue to be an unavoidable reality of doing business.
Pharmacies often aim to achieve high ratings on their performance metrics as a way to offset these fees. In some cases, a misconception persists that reaching these milestones will automatically eliminate DIR fees altogether. In this Q&A, Nick Brooke, industry relations director at , shares some background information on DIR fees and the actual benefits of being a high-performing pharmacy.
Q: How would you describe DIR fees?
A: DIR was introduced by the Centers for Medicare & Medicaid Services (CMS) as a way to account for rebates that would affect the cost of Medicare Part D prescription drugs. A lot of folks don’t realize that it was included in the passage of Part D in 2006, but its original intent is not what it is currently manifested as. Today, “DIR fees” refer to payments PBMs receive from pharmacies to , including fees for network participation or periodic reimbursement reconciliations. This all-encompassing definition, and the fact that the fees are usually applied after the point of sale, make it challenging for a pharmacy to gauge how much they can expect to pay.
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Q: How do performance measures influence DIR fees?
A: Performance measures, which are determined at the discretion of health plans, are used to evaluate pharmacies. These metrics tend to differ by plan. Achieving high-quality ratings can push a pharmacy into a bracket with lower DIR fees, and in some cases, a bonus payment. Pharmacies are measured at either the store level or the PSAO (pharmacy services administration organization) level, the latter of which means that plans aggregate each metric across the organization’s entire network of pharmacies. For plans weighed at the pharmacy level, DIR fees are determined based on a percentile ranking, which compares the performance of every pharmacy that accepts that plan.
Q: Why do “five star” pharmacies have to deal with DIR fees?
A: The “five star” rating is a bit of a misnomer here, as pharmacies aren’t measured against a five-star quality rating system. This confusion is likely caused by conflating these metrics with CMS’ Five-Star Quality Rating System for plans. A better term to use would be “high performing.”
That said, the simplest answer to the question is that plans are set up to reward pharmacies that rate highly on performance metrics but not necessarily to eliminate DIR fees. One way to reward them is through lower DIR fees, as mentioned earlier. For example, let’s say a pharmacy has a plan with a DIR rate of 4% to 6% of ingredient cost. As a high performer, the pharmacy would pay the lowest threshold of 4%. If the pharmacy is filling $200,000 worth of a medication, that 4% is still a $4,000 difference at the end of the year, compared to a pharmacy facing the 6% rate.
Q: Besides lower DIR fees, why should pharmacists strive to have a high-performing pharmacy?
A: There are a few tangible benefits of being a high-performing pharmacy. Some wholesalers will provide additional generic rebates for pharmacies that achieve high performance scores. Some plans also offer performance bonuses for pharmacies in the very highest percentiles. Additionally, rating highly on a metric like medication adherence translates to high script counts and increased patient loyalty, which is good for business. Given these benefits, it is worth the effort to lower the amount taken out of your reimbursements and improve your bottom line. CT
To learn more about how Amplicare can help you improve your performance measures and reduce your DIR fees, reach out to growth@amplicare.com.