How to Handle Rising DIR Fees in Your Independent Pharmacy
It’s no secret that DIR fees leave pharmacies in the dark: harming your patients, your profits, and the viability of your business. For years, pharmacy benefit managers (PBMs) have used direct and indirect remuneration (DIR) fees to penalize pharmacies and take the share for themselves — but now, pharmacies are fighting back. With the right measures, you can mitigate DIR fees and make a change in your pharmacy.
What Are DIR Fees and How Do They Hurt Pharmacies?
According to the National Association for Chain Drug Stores (NACDS),
“DIR fees are the result of a loophole in Medicare regulations. Often more than half a year after a pharmacy fills a Medicare prescription, payers [PBMs] are taking back money paid to pharmacies. Payers are claiming they are taking back money due to a pharmacy’s performance on so-called quality measures. However, these quality measures can be unknown, unpredictable, inconsistent, and outside of a pharmacy’s control.”
DIR fees started in 2010, and since then, they’ve grown exponentially. In fact, the Centers for Medicare & Medicaid Services (CMS) estimate that, between 2010 and 2019, pharmacy DIR fees increased by 91,500%. And pharmacies are feeling the impact.
A 2021 survey from the National Association of Community Pharmacists (NCPA) found that, among all issues facing pharmacists, this one remains at the top.
NCPA reports, “The top concern [of community pharmacists] is the impact pharmacy DIR fees will have on the viability of their small business. 97% of [pharmacists] state that they are significantly concerned with the impact DIR fees are having on their business.”
Impact can vary widely. If DIR fees aren’t reformed, half of pharmacy owners say they’ll have to cut pay (including their own). 40% say they’ll have to reduce services, and 25% say they’ll have to close their doors altogether.
Making a Change: PBM Reform Across the Nation
But change is well underway. Across all 50 states — and at the federal level — pharmacists are stepping up to fight abusive PBM practices. They’re fighting for price transparency, patient choice, and fair reimbursements. And you can do the same. To keep up with all of the action on PBM reform, look to NCPA’s Legal Center
Then start advocating for yourself and your profession. In this case, you should:
- Stay in the know on the latest laws and legislation
- Contact local, state, and federal officials about PBM reform
- Sign petitions and show support for pro-pharmacy policies
- Educate patients and professionals about harmful PBM practices
- Get involved with independent pharmacy organizations, like NCPA
- Team up with other healthcare professionals in your network
Large-scale legislation is needed to make long-lasting change; but in the meantime, DIR fees still exist. And as long as they’re around, they still pose a problem to the tens of thousands of independent pharmacies across the country.
So as you fight for change, you can still mitigate already-existing DIR fees by following a few best practices.
5 Ways to Stop DIR Fees From Taking Your Profits
1. Improve Your Star Ratings
PBMs use performance metrics, called “star ratings,” to help determine how much pharmacies should pay back and how much they should profit. Often, these metrics are inconsistent and unclear. But while we work towards reform, you can improve your star ratings at the same time.
One of the best ways to do it is to improve your adherence rate. Try implementing a new med sync program or trying out compliance packaging to keep your patients adherent and ensure that star ratings don’t get the best of you. It’s worth the effort.
As Ollin Sykes, a CPA who works closely with independent pharmacies, reports, “We’ve seen pharmacies with star ratings close to (or right at) “5” experience reductions in DIR fees to as low as 1.7% to 1.8% of revenues from the average of 2% to 4%.”
Find new ways to get your ratings up and your fees down.
2. Look to Your PSAO
Pharmacy services administrative organizations (PSAOs) are collective bargaining groups that work with independent pharmacies to handle back-end operations. PSAOs can help you to negotiate contracts with other parties in the pharmaceutical supply chain and manage DIR fees.
But all PSAOs are different, operating under different contracts with different DIR fees. If you want to manage DIR fees effectively, make sure you’re partnering with a PSAO that helps you get the lowest possible rate. If not, you might want to make the switch. Click to learn about some of the top PSAOs.
3. Estimate Upcoming Fees
Rather than guessing about upcoming fees, you can estimate how much you’ll end up paying and prepare accordingly. You can grab a calculator and do the math yourself, or you can call on your pharmacy management system to do it for you. Some systems come equipped with features that let you quickly and easily manage upcoming losses: simply enter a third party’s DIR percentage or dollar amount and then have that fee applied to applicable prescriptions. Other systems operate off of other calculation tools.
Not sure if your vendor offers these tools? Click to get a detailed description of the top software vendors and compare companies. Then, when you schedule a demo, make sure to ask about DIR fee management.
4. Keep Track of Third-Party Reconciliation
Third-party reconciliation is another important part of managing DIR fees. Reconciliation involves settling a patient’s third-party payment against third-party claims; but it can be tricky and time-consuming. Instead of managing your claims yourself, you can call on your pharmacy software system yet again. The best software systems have built-in third-party reconciliation services, which can help you anticipate third-party reimbursements and know how much you’re actually getting paid.
Make sure you pick a vendor that prioritizes third-party reconciliation.
5. Generate Revenue from Other Services
DIR fees apply to dispensing, but they don’t apply to other services. Try opening up vaccinations and immunizations, point-of-care testing, healthcare screenings, and other profitable services to boost your bottom line. Not only can you help mitigate DIR fees, but you can become a healthcare destination for your patients — which will only build your credibility in your community.
Find Your Way Around Fees
DIR fees are the biggest threat to pharmacists, but with enough advocacy and effective mitigation strategies, you can do your part to fight back. Plan to get involved in efforts around you, and plan to get a pharmacy software system that helps you handle DIR fees from the start.